Imperial College London (University of London)

Small Business Growth in the US:

A Study of Internal Resources and Their Effect on Small Business Growth

by

Michael Casassa

A report submitted in partial fulfilment of the requirements for the MBA degree and the Diploma of Imperial College London

September 2007

Michael Casassa

Michael Casassa

Synopsis
The growth of small business in the United States has been steady in recent years. The latest United States Census Bureau report shows that there are 22 million small businesses operating in the United States (US Census, 2002). This continues a trend of 2% growth that goes back nine years. In the same report, the census shows that about 17 million or 77% of these small businesses have not one employee. The US Dept. of Labour, Bureau of Labour Statistics (BLS), categorises these small businesses without employees as non-employers. These non-employers are businesses without employees or payroll as compared to self-employers who employ workers and have a payroll. According to the Bureau of Labour Statistics, In recent years, non-employer counts have been rising above self-employment counts, implying that more individuals are involved in personal business activity. Since employee counts are a telling factor in measuring small business growth (Shepherd & Wiklund, 2005), this data shows that more small businesses are choosing to grow less. The question this data raises is:

Why are a large number of US small businesses foregoing the hiring process and therefore foregoing significant growth?

Other questions that follow are:

1.

What factors of growth (if any) are small business owners struggling with?

2.

To what extent is non-growth the small business owners choice?

This paper examines internal factors of small business growth and their effect on actual growth. In doing this, it is easier to establish why small businesses are abstaining from significant growth. This paper uses the research results from examination of internal growth factors and applies them to existing small businesses in the US. This is done to expose the factors behind the growth of the non-employer and the lack of significant small business growth in the United States.

Michael Casassa

Acknowledgements
I would like to thank everyone at Imperial College London who contributed to this final project especially Tim Meldrum and Simon Stockley. Thanks to everyone at the University of Washington Business School especially Jaime Banaag. I would like to acknowledge everyone at the Small Business Association especially Sy Maselow and Shirley Mylott. Thanks to Brian Headd at the Small Business Administrations Office of Advocacy for taking time to help me with the interview. I would also like to thank my fiance, Charu, for her help with the survey.

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Introduction ......................................................................................... 1
1.1 1.2 Background ...................................................................................... 1 Research Objectives and Scope ..................................................... 2
1.2.1 1.2.2 1.2.3 1.2.4 Objectives ........................................................................................ 2 Scope .............................................................................................. 2 US Small Business Focus ................................................................ 3 Personal Objectives ......................................................................... 3

1.3

Research Questions ......................................................................... 4

Literature Review ................................................................................ 5

2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 Overview ........................................................................................... 5 Defining Small Business .................................................................. 8 Defining Growth ............................................................................... 9 External Factors ............................................................................. 12 Who Starts a Small Business? ...................................................... 14 Why Start a Small Business? ........................................................ 15 Motivation v. Growth ...................................................................... 16 Motivation ....................................................................................... 17
2.8.1 2.8.2 2.8.3 Theory of Planned Behaviour ......................................................... 17 Wiklund and Shepherds Theory of Planned Behaviour................... 19 Empirical Studies on Motivation...................................................... 21

2.9

Resources ....................................................................................... 22
2.9.1 2.9.2 Human Capital ............................................................................... 23 Financial Capital ............................................................................ 24

2.10 2.11

Entrepreneurial Orientation ........................................................... 25 Conclusions on Literature Review ................................................ 28

2.11.1 Motivation ...................................................................................... 28 2.11.2 Resources...................................................................................... 29 2.11.3 Entrepreneurial Orientation ............................................................ 29

Methodology ..................................................................................... 31
3.1 3.2 3.3 3.4 Overview ......................................................................................... 31 Hypotheses on Business Growth .................................................. 32 Research Questions ....................................................................... 34 Research Overview ........................................................................ 34

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3.5

Primary Research Interviews ...................................................... 35

3.5.1 3.5.2 SCORE (Service Corps of Retired Executives) ............................... 35 SBA (Small Business Administration) ............................................. 36

3.6

Primary Research Web Survey ................................................... 37

3.6.1 3.6.2 3.6.3 3.6.4 Small Businesses Chosen for Web Survey ..................................... 37 Geographical Region Chosen for Web Survey................................ 37 Diversity of Businesses Chosen ..................................................... 38 Web Survey Logic .......................................................................... 40

3.7

Secondary Research ...................................................................... 41

3.7.1 Literature Review ........................................................................... 41

Results ............................................................................................... 42
4.1 4.2 4.3 Survey Response ........................................................................... 42 Survey Results ............................................................................... 42 Interviews ........................................................................................ 42

Findings ............................................................................................. 43
5.1 5.2 Overview ......................................................................................... 43 Opening General Questions .......................................................... 44
5.2.1 5.2.2 5.2.3 5.2.4 5.2.5 Location ......................................................................................... 44 Industry .......................................................................................... 44 Years of Operation ......................................................................... 44 Sole-Proprietorship ........................................................................ 44 Employees ..................................................................................... 44

5.3

Motivation ....................................................................................... 45
5.3.1 Growth Plans ................................................................................. 45

5.4

Resources ....................................................................................... 46
5.4.1 Human Capital ............................................................................... 46

5.5 5.6 5.7

Entrepreneurial Orientation / External Factors ............................ 48 Closing General Questions............................................................ 50 Interview Findings .......................................................................... 51
5.7.1 5.7.2 5.7.3 SCORE Interview ........................................................................... 51 SBA Interview ................................................................................ 52 Interviews Conclusion .................................................................... 52

5.8 5.9

Addressing the Research Questions ............................................ 53 Addressing the Hypotheses .......................................................... 56 IV

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Conclusion and Recommendations ................................................ 60

6.1 6.2 6.3 6.4 Limitations of Study ....................................................................... 60 Recommendations for Future Research ....................................... 61 Achievement of Research Aims and Objectives .......................... 62 Summary and Conclusions ........................................................... 63
6.4.1 6.4.2 Summary of Research.................................................................... 63 Conclusions ................................................................................... 64

Bibliography ...................................................................................... 67

Appendix A: Survey Questionnaire .............................................................. i Appendix B: Questionnaire Logic ............................................................... iv Appendix C: Survey Covering Letter ........................................................... v Appendix D: SCORE Interview Transcript .................................................. vi Appendix E: Web Survey Results ................................................................ x Appendix F: Summary of Detailed Survey Responses ........................... xiv

Michael Casassa

Table of Figures
Figure 1.1: Introduction to Research Questions.4 Figure 2.1: Research Methods - Sources of Information ............................................ 6 Figure 2.2: Common Small Business Attributes ....................................................... 14 Figure 2.3: Ajzen's Theory of Planned Behaviour .................................................... 18 Figure 2.4: Wiklund & Shepherd's Theory of Planned Behaviour ............................. 21 Figure 3.1: Inductive Research Approach ................................................................ 31 Figure 3.2: Summary of Research Questions .......................................................... 34 Figure 3.3: Area of Business Industry ...................................................................... 38 Figure 3.4: Number of Years of Business Operation ................................................ 38 Figure 3.5: Number of Employees ........................................................................... 39 Figure 3.6: US Regions Chosen.39

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Notation
The following terms and acronyms are used throughout this paper:

Term SBA EU SME EO SCORE BLS OSHA

Definition Small Business Association European Union Small and Medium size enterprise Entrepreneurial Orientation Service Corps of Retired Executives US Dept. of Labour, Bureau of Labour Statistics Occupational Safety and Health Administration

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1 Introduction
1.1 Background
During a presidential campaign speech in 2000, US Vice President Al Gore recited the following quote, Small business is the engine of economic growth in the United States. This sentiment has been echoed countless times by politicians and policy makers throughout the US and the world. Hugo and Garnsey (2005) state, That new firms are a source of innovation and economic renewal is now widely known. Byrne (1993) says, Small business growth is emerging as a global phenomenon with new ventures forming at unparalleled rates and the spirit infusing them reshaping economies around the world. Entrepreneurship and small businesses have been designated as the engines of growth not only by providing new jobs in the United States, but also in developing and privatising economies around the world (Birch, 1987). For the amount of emphasis that is placed on the importance of developing small business, limited research exists on the subject. Surprisingly little theoretical, quantitative and rigorous literature focuses on the decisions of entrepreneurs to develop their firms (Ward, 1993). Almost 80% of businesses in the US are non-employers (US Census 2002), and therefore experience little or no growth. Non-employers are a key aspect of small business to explore since so much emphasis is put on growing and developing small business. To find out why small businesses are attempting less growth, it helps to explore two areas: the factors of growth the business owners are struggling with and to what extent the choice of non-growth is the business owners choice. To uncover possible reasons behind the non-employer increase, it is crucial to examine the factors that directly affect business growth. Many academics including Shepherd and Wiklund (2005), list two major categories that growth factors fall under: 1. 2. External Forces Internal Forces

External factors include demand, economic market and legal regulations. Internal factors can include factors such as motivation and financial resources. Although this paper focuses on internal factors that affect small business growth, external factors will also be explored to a limited extent.

Michael Casassa

1.2
1.2.1

Research Objectives and Scope

Objectives

This paper is concerned with accomplishing the following objectives:

Identify the major factors contributing to small business growth through academic literature research. Present hypotheses on the increase of the non-employer. Propose research questions based on extensive literature research

Explore growth factors through a series of personal interviews and small business surveys. Discover what (if any) growth factors the small business owner struggles with, and to what extent non-growth is the business owners choice. Supplement personal experience as a small business owner to further examine the challenges of small business growth

Examine findings and answer research questions. Test hypotheses based on research and findings. Conclude with summary of findings and propose topics for future research

1.2.2

Scope

This research builds off the work of the many academic scholars who have devoted their time and effort to the study of small businesses and business growth. It is not the intent of this paper to propose a radical new theory about small business growth or dismiss any work that has been published by my predecessors. Rather, the objective is to combine the relevant, cumulative knowledge of academics and small business owners and explore significant issues that have not yet been raised. This paper is focused on the subject of internal aspects to small business growth. These are aspects such as motivation and resources. Although external forces can have a major impact on small business growth, this paper is concerned with growth aspects that are directly controlled by the small business owner. External factors to small business growth are discussed in Section 2.4 only to further clarify and define the internal factors involved in small business growth.

Michael Casassa

1.2.3

US Small Business Focus

Almost 80% of small businesses in the United States have been documented as nonemployer businesses. These businesses are growing at a rate of 3.9% as compared with the 2% growth rate of self-employer small businesses. The statistic is taken from the US census bureau and is concerned strictly with US small businesses. It is therefore logical to maintain a focus on small businesses based in the US.

1.2.4

Personal Objectives

The research in this paper is important to me on a personal level. I have owned and operated a small business for the last seven years in Seattle, US. My business has gone through slow growth, where I have only hired employees for temporary purposes. I started my business with only average aspirations for growth, but have realised in the recent years that growth is something that I am interested in achieving. Small business growth has now become an interest of mine on two different levels:

I am concerned with finding out more about the factors that entrepreneurs struggle with in growing their businesses

I am intent on using these findings in the future to analyse myself and my small business.

I realise that small business growth is a complex process that is not accomplished easily. I have spent a great deal of time discussing growth issues with small business owners over the last few years while I have also attempted steps toward small level growth with my personal business. This is a process that has been challenging and exhausting.

My personal objective with this paper is to eventually use the knowledge gained to assist me in growing my small business.

Michael Casassa

1.3

Research Questions

The following research questions developed from the literature review in Section 2. Detailed information on how the research questions were formulated is located in the literature review. The research questions are listed again in Section 3.3. These research questions are explored throughout the literature review and fully answered in Section 5.10.

Ref. Number

Growth Factor

Question

R1

Motivation

Does a high level of motivation lead to an Increase in business growth?

R2

Resources

Is human capital or financial capital more effective in creating high-level growth?

R3

Entrepreneurial Orientation

Is entrepreneurial orientation a major contributor to small business growth?

Figure 1.1: Introduction to Research Questions

Michael Casassa

2 Literature Review
2.1 Overview
Academic interest in small business is relatively recent. Whether the previous lack of interest reflected real-world dominance of big business or simply unawareness of small business by researchers could be debated. More important, however, is that scholars now recognise that small businesses are essential for entrepreneurial activity, innovation, job creation and industry dynamics (Acs, 1992; Thurik and Wennekers, 2001). This recent interest in small business has sparked debate on everything from how small business ideas are developed to how innovation in small firms is managed. Although all of these topics are integral to the study of small business, growth is still one of the most dynamic topics with regards to entrepreneurial small business (Wennekers, 2001). Penrose (1995) stated the following about business growth in 1959, So far as I know, no economist has yet attempted a theory of the growth of firms. She went on to say, Perhaps such a theory is impossible to construct, unnecessary, trivial, or outside the pale of economics proper. I do not know but I hope that all four possibilities will be rejected. Penroses Theory of the Growth of the Firm proved to be one of the first documents focused solely on business growth. Small business operations and business growth are two relatively understudied subjects. This creates a challenge in gaining a relevant and informative literature review. Given that Penrose was a pioneer in the business growth field in 1959, there exists the possibility of only 47 years of research in the field of business growth a short period given that businesses have been operating for hundreds of years. In addition, the fact that this paper is focused on small business growth (a subject even less explored) creates even more of a challenge in obtaining meaningful information. Relatively few studies have empirically investigated the link between small business on the one hand, and firm growth on the other (Wiklund & Shepherd, 2003). In their study on small business growth, Wiklund and Shepherd state, We have found only four published studies investigating the relationship between small business and growth. This relative lack of pertinent information creates more difficulty in obtaining information, but also creates more opportunity for this final project to contribute to this specific field of study. This paper draws extensively on several different academic studies from all over the world. Although a great deal of the literature review is focused on US businesses,

Michael Casassa

most small business growth principles are universal; therefore this paper includes research from the UK, France and other countries. While most small business principles are universal, every individual country has its own culture and business laws which have their effects on small businesses. Although evidence from several countries suggest that only a small fraction of all small businesses grow to substantial size, there are national differences suggesting that a larger share of businesses become larger in, for example, the UK (Storey, 1994) and the US (Birch, 1977). Such differences may stem from individual differences in growth aspirations, perceived opportunity, resource structures or some combination of these (Wiklund & Shepherd, 2003).

The literature review includes information taken from the following sources: Books, magazines, newspapers Unpublished scholarly dissertations Trade journals Published research papers Internet search Electronic databases

As shown in figure 2.1, the literature review was completed in three stages. The review started with general information and personal experience and progressed to a more intense focus on finding precise information.

Primary

Secondary

Tertiary

Business Texts Unpublished Documents Personal Experience

Trade Journals Newspapers Books Published Reports

Databases Internet Search Catalogues Collections

Figure 2.1: Research Methods Sources of Information

Michael Casassa

The literature review aims to: Provide an overview of the research that has been published on the topic of small business growth. Identify noticeable omissions in the literature which are constructive to the support of the arguments in this paper. Conclude with a summary of the main points of the literature review, and use these points to answer forthcoming research questions.

The literature review is organised as follows:

I. Defining Small Business II. Defining Growth III. External Factors IV. Who Starts a Small Business? V. Why Start a Small Business? VI. Motivation v. Growth VII. Motivation VIII. Resources IX. Entrepreneurial Orientation and Performance

Michael Casassa

2.2

Defining Small Business

Before discussing small businesses and the growth factors associated with them, it is imperative to first define small business. The Small Business Act states that a small business is "one that is independently owned and operated and which is not dominant in its field of operation." The United States law also states that in determining what constitutes a small business, the definition will vary from industry to industry to reflect industry differences accurately. The Small Business Administrations (SBA) Small Business Size Regulations implement the Small Business Act's mandate to SBA. SBA has also established a table of size standards, matched to North American Industry Classification System (NAICS) industries. When the U.S. Congress first established the Small Business Administration, the fundamental question was just what numerical definition should SBA use to define small businesses, industry by industry, to determine what businesses were eligible for SBA's programs. Over the years SBA has established and revised numerical definitions for all for-profit industries, and this numerical definition is called a "size standard." It is almost always stated either as the number of employees or average annual receipts of a business concern (US SBA, 2006). In addition to establishing eligibility for SBA programs, all federal agencies must use SBA's size standards for its Federal Government contracts it identifies as a small business. Agencies must also use SBA's size standards for their other programs and regulations, unless they are authorised by Federal statute to use something else. The SBA defines both a sole-proprietorship and a firm with 499 employees and everything in between as being a small business (Little, 2005). A newer addition to the classification system of the SBA is the microbusiness. The SBA defines a microbusiness as a business with less than 5 employees, little, if any access to commercial banking, and yet which may require a loan of up to $15,000 to get started. The focus of this paper will be primarily on businesses that are classified as microbusinesses; however, I will also focus on sole-proprietorships with slightly more employees (10 or less), and also address larger businesses (50 or less).

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2.3

Defining Growth

During a lecture at the University of Uppsala in Sweden, economist Edith Penrose stated that in her years of business research, she has gone forward with the assumption that business owners or managers are primarily interested and driven by the profitable expansion of the activities of their firms (Penrose, 1985). She went on to say, Profits are treated as a necessary condition of expansion of growth and growth therefore (is) the chief reason for the interest of managers in profits. Moreover, the more profits that can be retained in the firm the better. Penrose said that in her work she assumed that the main objective of the firm was to make as much profit as possible so as in part to expand and grow (Penrose, 1985). Although her views are concerned more with the motivation to grow, implied within is the fact that growth is a direct result of profits. In her speech, Penrose stated a belief that many business owners and academics hold true: business growth equals turning a monetary profit. Other academic researchers have explored the notion of growth and emerged with slightly different outcomes. In a well recognised definition of entrepreneurial growth, Stevenson (1984) advocates that pursuit of opportunity is the most important component of entrepreneurship (Stevenson, 1984; Stevenson and Jarillo, 1986; 1990). That said, it is hard to imagine a small business taking advantage of an opportunity and having considerable impact on the market place without growing (Shepherd & Wiklund, 2005). Although it seems straightforward, business growth can be challenging to define. While some research state that profits equal growth, other research use other benchmarks such as numbers of employees. Growth has an ambiguous definition that is best defined by each individual business owner. If a business owner decides to pursue a growth rate of 3% per year, then that is the definition of growth as it pertains to the business at hand (Little, 2005). This may be true in certain cases, but there is published research that produces more accurate methods by which growth can be measured. In a research paper on the early development of new firms, Hugo and Garnsey (2005), list two typical methods used to measure business growth: 1. Growth in terms of cross-sectional measures of key factors 2. Growth over time The cross-sectional approach is basically a simple conceptualisation of the nature of growth in many cross-sectional studies using a survey methodology. Firms exhibiting a variety of attributes are represented as passing through a series of time frames 9

Michael Casassa

during each of which there is an exposure to an array of conditions. These factors determine the size of the firm at that time or subsequently (Storey, cited in Hugo and Garnsey 2005). Hugo and Garnsey (2005) say that many of these studies produce contradictory or inconclusive results. Since these studies often compare firms that differ in their age, business cycle timing and sector experience these inconsistencies are not surprising. Time-series approaches that examine attributes and conditions at several points in time adopt a less limited perspective on firm growth, recognising that different factors become important over time (Hugo & Garnsey, 2005). These studies seem to be useful in certain ways like the renewal role of new entrants and sectoral differences in growth rates, but also have many shortcomings. Hugo and Garnsey (2005) state that time-series studies such as life-cycle studies have been heavily criticised since they rarely provide measurable attributes associated with firm growth, nor distinguish conceptually between phases of activity, stages of development and processes of growth. Garnsey (2006) states that the study of new firm growth suffers from an absence of conceptual models that can link research at different levels of analysis so that consistent inferences can be drawn from one level to another. Garnsey (2006) continues on to say that evidence from case studies of new firms provides narratives of individual development, while aggregate analysis are not used to inform each other in the current literature. Improvement could be made by comparing consistent measures of firms performance and the way these change over the course of firms existence. The more recent research pertaining to small business growth still determines that there is no definitive way to measure growth in the small business sector. Since small business study is relatively new, not enough research has been completed focusing on just one firm and its growth patterns (Garnsey 2006). A more traditional view of growth says that the term growth is used in ordinary discourse with two different connotations. It sometimes denotes a simple increase in amount while at other times it is used in its primary meaning implying an increase in size or an improvement in quality as a result of a process of development, akin to natural biological processes in which an interacting series of internal changes leads to increases in size accompanied by changes in the characteristics of the growing object (Penrose, 1995). There have also been sporadic attempts to develop theories of the growth of businesses using biological analogies and treating firms as

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organisms whose processes of growth are essentially the same as those of the living organisms of the natural world. These analogies seem to exclude the fact that human motivation and conscious human decision have no place in the process of growth. All the evidence we have indicates that the growth of a firm is connected with attempts of a particular group of human beings to do something; nothing is gained and much is lost if this fact is not explicitly recognized (Penrose, 1995). This paper uses Penroses definition of growth implying an increase in size or an improvement in quality as a result of a process of development. This definition of growth is not only concerned with profits, but concerned with recognizing small business as a fluid, changing entity where internal change may lead to change in the overall characteristics and attitudes of the business. Growth in this paper will not be defined as purely profits-based, but instead be defined as a mind-set to constantly improve the performance and prosperity of a small business. However, it is crucial to note that profits and employee base are simple and significant indicators of growth and can be easily used as benchmarks.

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2.4

External Factors

The growth of a firm will to some extent be determined by the growth opportunities in the businesss market niche. For any given product in any given niche, factors such as competition, the growth of overall demand, and changes in customer preferences, set limits to growth (Covin and Slevin, 1997; Sexton and Bowman-Upton, 1991). However, changes in the business environment do not always constrain small business growth; the environment can also be the source of new growth opportunities (Drucker, 1985). As business management makes the best use of the resources available, the environment is treated as an image in the entrepreneurs mind of the possibilities and restrictions with which in fact determines behaviour. Even demand as seen by a business is largely conditioned by the productive services available to it, and hence the direction of expansion the products a firm becomes interested in producing can be analyzed with reference to the relationship between its resources and its own view of its competitive position (Penrose, 1995). The focus of this paper is primarily on the internal forces that cause businesses to grow or stagnate. Although there may be many external models such as the population ecology models that study the death and survival of small businesses in different locations, this paper will not incorporate these. From his own investigation of growing new firms, Boswell (1973) concludes that though external factors are important the balance of the argument still comes down more on the side of internal pushes than external pulls. This is so for two reasons. Firstly, founders enter growth situations of their own volition and even initiate them by innovation. Secondly, there are many stages in the life of the firm at which founders can opt for a no-growth strategy even though this may mean the firm remains marginally viable. Penrose (1995) says that the relative environment, that is the set of opportunities for investment and growth that its entrepreneurs and managers perceive, is different for every firm and depends on its specific collection of human and other resources. This suggests an important aspect on the relationship between internal and external forces: external forces can be somewhat controlled by the internal resources of the business. The environment is not something out there, fixed and immutable, but can be manipulated by the firm to serve its own purposes (Penrose, 1995). The relation of the firm to its environment can be illustrated if one asks the question why the growth of a firm endowed with productive resources that can be used in many ways and can be increased by the acquisition of additional resources should be confined by demand. There seems to be no reason why a firm should see its 12

Michael Casassa

prospect of growth, its productive opportunity, in terms of its existing products only; there are many reasons why it should see it in terms of its existing resources and should search for opportunities of using them more efficiently (Penrose, 1995). One external factor that is discussed in this paper is what is typically called the bureaucratic factor. This can be defined as the process of navigating the increasingly complex Federal and State regulatory systems involved in operating a business in the United States. Although the bureaucratic factor seems like a true external factor, it exposes the abilities of entrepreneurs and their competency at running the administrative side of their business. As Penrose (1995) noted, these systems can be somewhat manipulated by the business owners. Therefore, the bureaucratic factor can be looked at as a test of the capabilities of the small business owner to adjust to the complex external rules and laws that may otherwise constrict the successful operation and growth of the small business. This factor will be explored further in the paper.

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2.5

Who Starts a Small Business?

It is helpful at this point to briefly explore exactly who the subjects of this paper are, and what characteristics they have. This makes itself more clear later in the paper when entrepreneurial motivation and ambition are discussed. For over 100 years academics have been studying entrepreneurial traits to find out what gives one person the initiative to start a business over another person who doesnt. Numerous studies have supported various sets of personality characteristics of entrepreneurship. Schumpeter (1934) believed that innovation was the central characteristic of the entrepreneurial endeavour. McClelland (1965) stated that energetic and/or novel instrumental activity was a key factor in entrepreneurial activity. He stressed that entrepreneurial creativity is different from literary or artistic creativity in that the entrepreneur does not innovate by creating ideas, but by exploiting the value of ideas. Although these are all plausible theories, no single conclusion has yet been agreed upon. Figure 2.2 lists common attributes commonly associated with entrepreneurs and small business owners. The normative characteristics are mainly describing the authors personal impressions while the empirical characteristics are drawn from first-hand accounts of studies that have been carried out on the entrepreneurs.
Authors Mill Weber Shumpeter Hartman McClelland Davids Pickle Palmer Winter Borland Liles Gasse Timmons Sexton Dunkelberg & Cooper Characteristics Risk-bearing Source of formal authority Innovation, initiative Source of formal authority Risk-taking, need for achievement Ambition, desire for independence Drive/mental: communication ability Risk measurement Need for power Internal locus of control Need for achievement Personal value orientation Drive/self-confidence Energetic, ambitious Growth oriented, independence oriented Figure 2.2: Common Small Business Attributes x x x x x x x x Normative x x x x x x x x Empirical

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2.6

Why Start a Small Business?

We know that people start and operate their own firms for a variety of reasons other than maximising economic returns (Storey, 1994). A major reason that so many entrepreneurs take the plunge into self-employment is for the flexibility and control over ones destiny. Cromie (1987) states that autonomy, achievement and a desire for job satisfaction are significant motivators for the creation of small business. A small business owner comments, Being your own boss is a bonus no one else can tell you what to do (Cameron, 2003). Rubinfeld (2005) says, We all want to control our destiny. We all want to express our creativity. We all want to build something that will last. There are many academic speculations as to why it is important for some people to start their own ventures, while for others, it has less importance. Cassar (2004) says it is recognised that entrepreneurs start and operate ventures for many different reasons, both extrinsic and intrinsic in nature. Motivation factors such as independence, financial success and self-realisation have been empirically developed to determine which are associated with entrepreneurial choice. The fear of failure is a largely documented explanation as to why some people dont start businesses. As the Small Business Administration states on its website (http://www.sba.gov), Success in business primarily depends on the owners foresight and organisation. It lists several reasons for small business failure. Included in the list is lack of experience, poor location, insufficient capital, and unexpected growth. It goes on to state that Underestimating the difficulty of starting a business is one of the biggest obstacles that entrepreneurs face. Penrose (1995), lists many more reasons why businesses fail, among them inefficient management, poor judgement leading to costly mistakes or simply bad luck. It is imperative to have a general understanding of the factors involved in starting a small business in order to realise how businesses grow. As stated above, the number of obstacles that entrepreneurs face when starting their business are innumerable; so in essence, it seems that once the business is stable, growth should be a minor step to take. Business growth is not that simple the traits that give an entrepreneur the ability to start a small business are not necessarily the same traits the entrepreneur needs to grow the business. As Section 2.7 explains, personal motivation does not always lead to small business growth.

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2.7

Motivation v. Growth

In 1982, at the Frontiers of Entrepreneurship Research Conference at Babson College, Dunkelberg and Cooper (1982) listed growth-oriented as one of the defining characteristics of small business owners. Although that conference was over 24 years ago, the growth characteristic is still applied to entrepreneurs in todays society. At the 2004 Babson College Conference, Gundry and Welsch (2004) stated, Understanding how growth intentions vary across entrepreneurs has been an important area of entrepreneurial research. But just because an individual has the motivation to start a business, doesnt necessarily mean the same individual will have the motivation to grow the business. Birley and Westhead (1994) investigated 405 principal owner-managers who had been in business five years or more, in regard to reasons for undertaking venture activity and whether differences in these reasons were reflected in their ventures future size and growth. Utilising 23 reasons for venturing, they decomposed ownermanager reasons into seven underlying motivation factors, and seven ownermanager types. While being able to classify owner-managers into founder types based upon their reasons for starting a business, Birley and Westhead (1994) generally did not find these types to be subsequent indicators of future size and employment, growth or future growth intentions. They concluded from these results that the motivations for starting ventures do not influence the subsequent size and growth of the venture (Cassar, 2004). So, why do some small businesses grow and others do not? Is it all a matter of the business owners preferences, or is it outside the owners control? Are there certain factors that small business owners struggle with that lead to little or no growth? The research on this subject repeatedly references three major internal growth factors that academic researchers have classified as integral factors to small business growth. The internal factors are:

1.

Motivation

2.

Resources

3.

Entrepreneurial Orientation

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2.8

Motivation

It is reasonable to assume that business owners and employees making decisions on behalf of a business are acting in the light of some purpose, yet it is notoriously difficult to discover the true purposes of anyone (Penrose, 1995). A common business perspective on motivation says that economics motivates individuals to grow small businesses (Shepherd & Wiklund, 2005). Managers of small businesses are assumed to be motivated by money and therefore make decisions in the running of those businesses with the goal to maximise firm profitability. The profit motive is based on the psychological assumption that an increase in income and wealth will have personal advantages for individuals which will spur them to obtain what they reasonably can (Penrose, 1995). But then further questions arise such as, why should a firm, or more accurately, the managers of a firm always strive to increase profits? Do the individuals in the firm have only the desire to turn a profit so they will individually benefit from the firms success, or is it something else entirely? Other theories have an opposing viewpoint to the profit motive described above. While an increase in profits is often a motivating influence, it is not the only factor that motivates the decisions and behaviours of small business managers. Indeed, financial rewards may not even be the most important motivator (Shepherd & Wiklund, 2005). So if economics arent the primary motivation to grow a small business, where does this motivation come from? Obviously, there are fairly clear motivators to starting a small business, but to devote so much time, money and energy into growth displays motivation of a different sort. A question that Shepherd and Wiklund (2005) ask is, Do small business managers have control over whether a business grows? If the answer is yes, then motivation is likely to be an important predictor of small business growth, but if small business growth is like the weather and outside the control of its management, then individuals motivations will not provide any insight into growth outcomes. This fact makes motivation a difficult variable to measure; however, a few academics have attempted to apply psychological models as a means to measure motivation and how it relates to small business growth. 2.8.1 Theory of Planned Behaviour

In 1992, Icek Ajzen published his Theory of Planned Behaviour which is a psychological theory that explains specific actions in specific contexts where individuals have some, but incomplete control over the outcome. His model is a theory about the link between attitudes and behaviour. As Ajzen (1991) states,

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Intentions are assumed to capture the motivational factors that influence a behaviour; they are indications of how hard people are willing to try, of how much of an effort they are planning to exert in order to perform the behaviour. As a general rule, the stronger the intention to engage in a specific behaviour, the more likely the behaviour will produce a positive result. This theory is a true psychological theory in the sense that it relates a number of psychological constructs to each other. Therefore, perceived behavioural control rather than actual behaviour control is included in the theory (Shepherd & Wiklund, 2005). Figure 2.3 shows a schematic representation of the theory.

source: Icek Ajzen, 2006

Figure 2.3: Ajzens Theory of Planned Behaviour

In his Theory of Planned Behaviour, Ajzen (1991) says that human action is guided by three kinds of considerations: 1. Beliefs about the likely outcomes of the behaviour and the evaluations of these outcomes (behavioural beliefs) 2. Beliefs about the normative expectations of others and the motivation to comply with these expectations (normative beliefs) 3. Beliefs about the presence of factors that may impede or facilitate performance of the behaviour and the perceived power of these factors (control beliefs) 18

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As a general rule, the more favourable the attitude and subjective norm, and the greater the perceived control, the stronger should be the persons intention to perform the behaviour in question (The subjective norm in Ajzens model is defined as an individuals perception of whether people important to the individual think the behaviour should be performed). Finally, given a sufficient degree of actual control over the behaviour, people are expected to carry out their intentions when the opportunity arises. Ajzens Theory of Planned Behaviour can help to explain why advertising campaigns merely providing information do not work increasing knowledge alone does not help to change behaviour very much (Ajzen, 1988). The theory takes into account that all behaviour is not under volitional control and that behaviours are located at some point along a continuum that extends from total control to a complete lack of control. Control factors include both internal factors (skills, ability, information) and external factors (situation, environment). Small firm growth may be an area where volitional control is of particular interest. On one hand, there is that the personal motivation of the small business owner is linked to growth outcomes. Growth implies radical changes of the business characteristics. These changes may run counter to the initial goals of the owner. Previous research indicates that an expectation of changed work conditions is a primary consideration for small business managers, which, in turn affects their motivation to expand their businesses (Wiklund, et al., 1997). This suggests that motivational differences may be an explanation as to why there are such large differences in small firm outcomes (Shepherd & Wiklund, 2003). On the other hand, there is reason to believe that small business growth is a function of the small business managers personal abilities (Jennings & Beaver, 1997). In order to expand a small business, the business owner must have the ability to secure the resources needed for growth as well as the capability of developing the organization (Covin & Slevin, 1997). 2.8.2 Wiklund and Shepherds Theory of Planned Behaviour

In 2003, Johan Wiklund and Dean Shepherd used Ajzens Theory of Planned Behaviour to develop a model of small business managers growth aspirations and the level of growth achieved. They focused on Ajzens role of intentions which said, Intentions are assumed to capture the motivational factors that influence a behaviour; they are indications of how hard people are willing to try. As a general rule, the stronger the intention to engage in behaviour, the more likely should be its performance (Ajzen, 1991).

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Although Wiklund and Shepherd agreed with this pure psychological theory, they believed that there was another aspect to this model. Wiklund and Shepherd (2003) wrote that the relationship between aspirations and growth appears more complex than previously stated. It depends on the level of education and experience of the small business manager as well as the dynamism of the environment in which the business operates. Education, experience and environmental dynamism magnify the effect that ones growth aspirations have on the realization of growth. Three years after publishing their study on small business growth, Shepherd and Wiklund (2005) detailed three other factors that, along with motivation, are significant to the growth of a small business:

Environment: Sometimes the environment does not offer attractive opportunities for growth (for example, the economy is in a recession)

Ability: The abilities of the small business manager are insufficient to match his or her enthusiasm for growth and she does not see the opportunities happen

Resources: The small business cannot access the resources necessary to implement its growth strategies

Using the Theory of Planned Behaviour developed by Icek Ajzen, Shepherd and Wiklund (2005) proposed a motivation-based model of small business growth, shown in Figure 2.4. The schematic demonstrates the fact that not all small business growth is left up to motivation alone resources also take a substantial role in the outcome of growth.

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Growth aspiration

Behaviour (growth)

Behavioural Control (resources) Source: Wiklund and Shepherd (2003).

Figure 2.4: Wiklund & Shepherds Theory of Planned Behaviour

2.8.3

Empirical Studies on Motivation

Studying a sample of small business owners/managers in the US, Bellu and Sherman (1995) found that certain motivational patterns are associated with growth for entrepreneurial organisations. Ambition, the desire to achieve by experiencing personal success, is particularly important. These factors seem to interact with the dynamism of the environment, so that entrepreneurs with these motivational attributes are more likely to succeed in environments where opportunities more often arise (Shepherd & Wiklund, 2005). Studying the same motivational factors as Bellu and Sherman (1995), Miner, et al. (1994) conducted a study comparing the managers of high-growth small businesses to the managers of low-growth businesses with a five-year lag between motivations and growth outcomes. The results were predictable: those who are motivated to plan for the future usually receive feedback on results. As a result, they are more likely to innovate, and more likely to manage high-growth firms. A study of a large sample of owners of four-year old Norwegian businesses garnered similar findings. Kolvereid and Bullvg (1996) found that small business managers who had intentions of expanding their businesses upon start-up typically did so within two years. This was compared to small business owners who had no growth intentions, and typically did not grow their businesses. These studies will be explored further in literature review conclusion (Section 2.11).

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2.9

Resources

The growth of a small firm depends on the type and amount of resources controlled by, or made available to it (Covin and Slevin, 1997). This sentiment is also described in Ajzens Theory of Planned Behaviour where he states that the business owners control over any behaviour affects the strength of the aspiration-behaviour relationship by working as a moderator (Ajzen, 1991). Behavioural control, in turn, is influenced by the individuals access to resources and opportunities to exert the behaviour (Wiklund & Shepherd, 2003). Penrose (1995) notes that a business is more than an administrative unit; it is also a collection of productive resources the disposal of which between different uses and over time is determined by administrative decision. These resources can be categorised as physical, financial or human resources. The physical resources of a firm consist of tangible things equipment, land, natural resources, raw materials and even unsold stock of finished goods. All of these are things that the business buys, leases, or produces, part and parcel of a firms operations and with the uses and properties of which the business is more or less familiar. The financial resources consist of the monetary reserves that the business uses to operate. The human resources can consist of unskilled and skilled labour, clerical, administrative, financial, legal, technical, and managerial staff. These can be treated as more or less fixed or durable resources, like equipment; even thought they are not owned by the firm, the firm suffers a loss akin to a capital loss when such employees leave the firm at the height of their abilities (Penrose, 1995).

The literature review on small business resources has exposed the fact that small business owners deal primarily with two major types of resources:

Human Capital Financial Capital

Sections 2.9.1 and 2.9.2 go into further detail about the two types of resources listed above and the small business owners relationship to these resources.

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2.9.1

Human Capital

Human capital can be defined as people and their ability to be economically productive. Education, training and health care can help increase human capital. Unlike physical labour, knowledge is expandable and self-generating with use. Knowledge is also transportable and shareable. Education and training are commonly regarded as the most important investment in human capital. Studies have shown that high school and college education in the United States greatly raise a persons income level. In this respect, human capital can be as, or more valuable than financial capital. The human capital of a small business owner consist of skills and knowledge that assist in running the business successfully (Snell & Dean, 1992). Such skills and knowledge can be obtained through education and experience. Human capital can be broken down into the following two categories (Becker, 1975):

General Human Capital Specific Human Capital

General human capital is not related to the ability of conducting a specific job and typically refers to years of education or years of work experience (Rauch and Freese, 2000). A consistent finding for general human capital is that educated individuals are more likely to run faster-growing small businesses than those who are less educated (Storey, 1994). However, there is more evidence to suggest that specific human capital has a more significant effect on individuals who strive to grow their small businesses. Unlike general human capital, specific human capital in the small business context is specific to the domain of operating a small business and consists of skills and knowledge of conditions, internal and external to the small business that help organise the business successfully, thus facilitating growth (Rauch and Freese, 2000). Most of the research that has been done on the subject of specific human capital has shown that experience that is relevant to the small business at hand helps to facilitate small business growth.

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2.9.2

Financial Capital

Financial Capital is widely considered to be any liquid medium or mechanism that represents wealth or other styles of capital. Monetary funding obviously plays a sizeable part in business expansion and growth. Securing funding may be particularly important in achieving the growth objectives of any firm (Sexton and Bowman-Upton, 1991). It is probable that the lack of financial capital would restrict a small business managers opportunities to take action. Many small business managers experience shortages of financial capital that limit their ability to pursue various initiatives (McGrath, 2002). Financial capital is widely looked at as the most important type of resource for small business growth since financial capital can relatively easily be converted into other types of resources (Dollinger, 1999). In an extensive research paper documenting the relationship between financial capital and small business growth, Beck, et al. (2001) studied over 4,000 small and medium size businesses in 54 countries. The research questioned whether financial constraints affected business growth, and if they did, what were the factors behind it. Their results indicated that financial constraints did, in fact, affect business growth significantly. The report states, We show it is the smallest firms that are consistently the most adversely affected by (financial) obstacles. These financial constraints were not only to do with monetary funding. Beck et al. (2001) states that they saw difficulties in dealing with banks, such as bank paperwork and bureaucracies, and the need to have special connections with banks in order to secure funding. They went on to say that collateral requirements and certain access issues such as financing for leasing equipment, also turn out to be significantly restraining. Other viewpoints regarding access to financial capital say that the lack of financial resources doesnt hurt growth in small business, but can actually stimulate entrepreneurial activity, and therefore growth. Hugo and Garnsey (2005) state that resource constraints induce entrepreneurial behaviour, and therefore promote small business innovation and growth. Entrepreneurs are ready to pursue opportunities before they control the resources they require (Stevenson & Jarillo 1990). Hugo and Garnsey (2005) go on to say that sustaining growth often requires more resources than new firms with an immature resource base can generate; growth creates problems of coordination and exacerbates resource deficiencies. These call for reconsideration of the firms goals, activities and resources. Efforts to find a solution open up new opportunities in firms that overcome early difficulties. Returns are reinvested or distributed, in ways that cumulatively alter the new firms resource base and business opportunity (Hugo & Garnsey 2005). 24

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2.10 Entrepreneurial Orientation

In 1983, Stevenson (as cited by Brown, et al., 2001) introduced the term entrepreneurial management. Stevenson defined entrepreneurial management as a set of opportunity-based management practices that can help a company to remain vital and competitive. The term entrepreneurial management is not only relevant for the start-up of new firms but also relevant for older companies. Stevenson identified six dimensions of entrepreneurial management (Brown, et al., 2001):

1. Strategic orientation 2. Resource orientation 3. Management structure 4. Reward philosophy 5. Growth orientation 6. Entrepreneurial Culture

Entrepreneurial management is closely related with entrepreneurial orientation. Lumpkin and Dess (2001) say the term entrepreneurial orientation consists of five major qualities that should exist in the entrepreneur. These qualities are as follows:

1. Autonomy 2. Innovativeness 3. Risk taking 4. Proactiveness 5. Competitive aggressiveness

The innovativeness dimension of entrepreneurial orientation reflects a tendency to support new ideas, novelty, experimentation and creative processes, thereby departing from established practices and technologies (Lumpkin and Dess, 1996). Innovative companies, creating and introducing new products and technologies, can generate extraordinary economic performance and have even been described as the engines of economic growth (Brown and Eisenhardt, 1995).

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Man, et al. (2002) relate the competitive scope, the entrepreneurial competencies and organisational competencies to firm performance. They list three tasks that the entrepreneur must accomplish in order for the business to remain competitive and grow. These tasks are as follows:

1. Form the Competitive Scope of the Firm This includes addressing external factors and their effect on the competitiveness and competitive scope of the company. This is likely to be affected by the entrepreneurs ability to interpret environmental conditions (Kemp, Verhoeven, 2002).

2. Develop Internal Capabilities of the Firm The internal sources of competitiveness are related to resources that are inputs for the production process, and capabilities/competencies that emphasise the tasks for transforming these resources (Grant, 1991).

3. Set Goals and Take Actions The entrepreneur must set goals and take actions for the goal through assessing competitive scope and using organisational capabilities. In other words, the entrepreneur has to link the external environment and the internal firm capabilities. In order to ensure the long-term performance of the company, the entrepreneur must set the direction for the company, and be visionary, strategic and goal-oriented.

Entrepreneurial orientation contributes to performance, defined as a compound measure incorporating dimensions of growth as well as financial performance (Wiklund 1999). Therefore, risk-taking, innovativeness and proactiveness keep small firms ahead of competitors. Competitive advantage derived from E.O. is also asserted to be sustainable, and therefore worthy of the investment by small firms. Zahra and Covin (1995) argue that the dimensions of E.O. should co-vary, i.e. a firm should score equally on all dimensions; if they score highly on one dimension, they will naturally score high on the others. They also found a positive relationship

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between the entrepreneurial orientation and the financial performance of a company, especially in the long-term. In all of the published research that has been done on entrepreneurial orientation, it is difficult to find any opposition to the influence of E.O. on company performance. After all, E.O. is a set of positive traits that help entrepreneurs and business owners stay ahead of competition, develop their firms to the fullest potential, and set goals towards business growth. These can either be natural (innate) traits that the entrepreneur possesses, or they can be learned practices that are implemented by the managers. Either way, entrepreneurial orientation can help develop a small business, and prepare that business for rapid growth.

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2.11 Conclusions on Literature Review

2.11.1 Motivation At the conclusion of the literature on motivation, there is no doubt about the importance of motivation on small business operation. It is surprising to note the results from studies that had been reported on high motivation and its impact on growth. Birley and Westhead (1994) conducted a thorough study that categorised levels of motivation to the smallest degree. From there they applied it to small business growth and saw no direct correlation. Although it is only one study, it is significant in the study of motivation and its effect on small business growth. Entrepreneurs v. Small Business Owners One of the results of the study that Birley and Westhead conducted in 1994 was to separate entrepreneurs from small business owners. Birley and Westhead (1994) concluded that the motivations for starting ventures do not influence the subsequent size and growth of the venture. This study suggests that it is possible to be an entrepreneur with a high level of motivation who doesnt grow a business. The excitement of starting a new venture most times will die out after a few years business growth does not have the same type of excitement involved in it. Business growth is a slow, laborious process that can take months or years before showing results. This could very possibly appeal to a completely different personality type with different motivations. This is an important aspect to business growth that Birley and Westhead expanded upon in their study. The other motivation studies reported on in the literature review took more of a psychological view. Ajzens Theory of Planned Behaviour is regarded as a central model to motivation, but significant variables are left out. Wiklund and Shepherds study of Ajzens theory addressed these variables and applied them to business growth. Still, they admitted that the variables in their study were difficult to pin down. They said of their study, We must point out that the measurement of resources and opportunities are relatively course-grained in the present study (Wiklund & Shepherd, 2003). After analysing Ajzens model, it is apparent that the greater the perceived control of a situation, the stronger should be a persons intention to perform the behaviour in question; however, there are many variables that factor into a business decision that may drown out perceived control. Wiklund and Shepherds study of Ajzens model makes more sense in the realm of small business growth. The altered model does

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not undermine Ajzens original in any form. Rather, Wiklund and Shepherd show that when behavioural control is added, the model becomes much more relevant to small business growth. 2.11.2 Resources The notion of human capital is a commonly overlooked aspect of resources. It is a factor that is typically not thought of as capital, but every bit as important as financial capital. The accumulation of knowledge throughout years of specific training and labour seems to be a valuable resource. Even general human capital that isnt directly related to ones current line of business can be just as valuable as currency when applied to small business management and growth. My personal experience in small business supports the research that was documented in Section 2.9.1. Small business decisions are a cumulative effect of experiences that business owners have throughout their lives. In this sense, general human capital can make a significant impact on small business growth. The literature on financial capital is not so simple. The contrasting arguments on finances and growth are complex and relevant. The study that Beck, et al (2001) conducted with businesses all over the world conveyed the fact that small businesses are devastated by lack of funding, where larger businesses are less affected. This study is interesting in that it expands the definition of financial capital to mean more than currency. The contrasting argument that Hugo and Garnsey (2005) propose is interesting when contrasted with Beck, et al (2001). The notion that a lack of funding will not devastate a business but make it more creative is a notion that is entirely plausible. It appears true that when a business is cash-poor it will bring out the most creative aspects of its owners. Hugo and Garnsey argue that it is at this point when the true entrepreneur can shine. 2.11.3 Entrepreneurial Orientation The five dimensions of entrepreneurial orientation that Lumpkin and Dess (2001) list are traits that every entrepreneur should strive to possess. Zahra and Covins study appears to be accurate when compared with other academic views on entrepreneurial orientation. They conclude that if an entrepreneur scores highly on one dimension, that entrepreneur will also score highly on the others. In my personal business experience, this is an accurate assessment. Later in this research, I explore how many business owners feel accomplished in all aspects of E.O.

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Entrepreneurial orientation is a checklist for entrepreneurial ability. The most remarkable aspect of entrepreneurial orientation is whether this ability is learned or innate. The research I documented made reference to the fact that entrepreneurial orientation can be a learned trait, though individuals who grow up in an entrepreneurial family obviously begin learning the traits at an earlier age, and therefore, are usually more adept. Although this question is outside of the scope of this paper, it brings up an interesting topic to consider and possibilities for future study.

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3 Methodology
3.1 Overview
This paper takes an inductive research approach. This is defined by Lancaster (2005) as theories being a direct outcome of the research conducted. In inductive research, one starts with specific observations, formulates hypotheses from those observations, and with the help of primary and secondary research, develops general theories or conclusions. The inductive approach suits this research in that it sets the stage for serious exploration of a defined subject. As the primary and secondary research in this paper developed and intensified, the focus narrowed. This is constructive in that it allowed for all subjects to be taken equally into account while focusing on succinct answers to the research questions. The result is a concise theory which is a direct result of the literature review, surveys and interviews. Figure 3.1 details the inductive research approach Two hypotheses are listed in Section 3.2 which originate from years of personal small business experience and interactions with other small business owners. Three research questions are listed in Section 3.3 that assist in answering the hypotheses. These questions developed primarily from the literature review. The research questions should be looked at as a catalyst to help decipher the literature research and surveys and assist in developing conclusions to my hypotheses. The research questions are analysed and answered in Section 6.

Primary Research

Hypotheses

Secondary Research

Interviews Survey

Research Questions

Literature Review

1. What factor of growth are business owners struggling with? 2. To what extent is non-growth the business owners choice

Figure 3.1: Inductive Research Approach

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3.2

Hypotheses on Business Growth

Lancaster (2005) says that the process of inductive research involves the researcher developing hypotheses and theories with a view to explaining empirical observations of the real world. These empirical observations can be based on many factors including personal experience. As a small business owner for seven years in the US, I have an advantage in that I have had years of small business experience that have helped form the hypotheses. During my years in business, I have not only dealt with my own issues trying to run and manage a small business, but I have also interacted with other small business owners and discussed management and growth issues in depth. In addition, I have attended various workshops at my local Small Business Association and learned about the average business problems that they commonly hear from small business owners. In my experience with small business growth, I have formed theories on why more small businesses dont expand or grow more quickly. These theories are taken from my personal experience along with the experiences of other entrepreneurs I have worked with over the past years. These hypotheses will be tested against the research questions which derived from the academic literature review. The World Bank publishes a chart each year listing 175 countries and ranking these countries based on the ease of doing business in each individual economy (www.doingbusiness.org). A high ranking (1) on the ease of doing business index means that the regulatory environment is conductive to the operation of the business. Economies are ranked on ten different topics ranging from business licensing to enforcing contracts. Although the US is still one of the easier countries in which to start a business (ranked 3 out of 175), it is becoming increasingly more difficult to deal with licenses (22 out of 175), and figure out the increasingly complex tax system (62 out of 175). I have experienced this first-hand as have many of my fellow business owners. Labour laws, increasingly complex tax laws and employee dependability are becoming issues of increasing importance. I have heard many stories from small business owners describing the difficulties of hiring even one employee. However, I dont believe this to be an external factor. I believe that the one reason why small business growth is stifled is due to the fact that the owners dont possess the tools (or, entrepreneurial orientation) to deal with the increasingly complex systems of labour, licenses and taxes. In this sense, lack of growth is not the business owners choice, but the product of a lack of entrepreneurial orientation.

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In this lies the first hypothesis on business growth:

Hypothesis 1: Growth difficulty is a result of the lack of appropriate internal business capabilities of entrepreneur colliding with increasingly complex regulatory systems

The literature review presented differing states of opinion on financial capital and its effect on small business growth. Beck, et al. (2001) describes financial capital as the resource that has the most impact on small businesses. Hugo and Garnsey state that a lack of financial capital can create an environment which actually fosters business growth. In my experience as a business owner, I have found both to be somewhat true. However, I have never seen a lack of financial capital completely stop the growth process. The stifled small business growth that I have seen and heard about from small business owners mostly comes from the human capital side than the financial capital side. That is, business owners have trouble finding the right human capital to help them complete their vision of growth. The owners may also not have enough specific experience to know how to implement the growth that they envision. The second hypothesis deals with the human capital factor on small business growth:

Hypothesis #2: Small business owners either dont require or cannot find qualified personnel to grow their businesses

Once again, these hypotheses are based on my experiences as a small business owner and my interactions with other business owners over the past seven years. The research questions derived from the literature review will test these hypotheses and explore other important factors involved in small business growth.

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3.3

Research Questions

Three research questions are listed below in Figure 3.2. These questions developed directly from the literature review. These questions also address the original questions listed in the synopsis, and my hypothesis listed in Section 3.3. Section 5 lists detailed findings to these research questions.

Ref. Number
R1 R2 R3

Growth Factor
Motivation

Question
Does a high level of motivation lead to an Increase in business growth? Is human capital or financial capital more effective in creating high-level growth? Is entrepreneurial orientation a major contributor to small business growth?

Resources Entrepreneurial Orientation

Figure 3.2: Summary of Research Questions

3.4

Research Overview

My research methodology employed a range of primary research methods, including: Review of academic literature including a range of books, journals and academic papers Review of the results obtained from web survey sent out to a variety of small business the majority located throughout the western United States Interviews with selected key members of the Small Business Administration and the Service Corps of Retired Executives

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3.5

Primary Research Interviews

In addition to several discussions with small business owners and acquaintances, interviews with key personnel at the SBA and SCORE were conducted in order to get a comprehensive understanding of the following: Motivation and its effect on small business growth The extent to which non-growth is the business owners choice Impact of resources on small business growth Typical problems small business owners encounter when attempting growth The effect of entrepreneurial orientation on small business growth

Two interviews were carried out with professionals in the business growth sector. These interviews were from 30-60 minutes in length and recorded for accuracy. The two firms represented in the interviews were:

1. SCORE (Seattle Regional Office): Score is a non-profit business devoted to offering small business advice and training.

2. SBA (Washington DC Head Office): The Small Business Administration is a Federal business that offers extensive information and resources to the small business owner.

3.5.1

SCORE (Service Corps of Retired Executives)

Score is a non-profit organisation that formed in 1964 with the primary intention of assisting small businesses. Score is allied with the Small Business Administration of the US along with many other small business organisations and banks. Eighty percent of its employees work on a volunteer basis, and a majority of the counsellors are retired business persons. Score defines itself as the Counsellors to Americas small business, and Americas premier source of free and confidential business advice for entrepreneurs. There are currently over 10,000 counsellors in different chapters throughout the US who volunteer on a regular basis. Score offers the small business person many resources including:

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Business strategy training Business plan creation workshops Website creation workshops Face-to-face counselling Marketing advice Financing advice and training

3.5.2

SBA (Small Business Administration)

The Small Business Administrations mission is, Maintain and strengthen the nations economy by aiding, counselling, assisting and protecting the interests of small businesses and by helping families and businesses recover from natural disasters. The SBA was founded in 1953 as a US governmental response to the devastation to small business that was a result of the great depression and the industrialisation of WWII. Approximately 20 million small businesses have received help from the SBA since its inception. The SBA is also the nations largest financial backer of small businesses with loans that currently total over $45 million. The SBA offers small business resources such as:

Small business loans Help with business licensing Federal and State tax assistance Legal assistance for small business Trademark and IP protection Counselling for female-owned businesses

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3.6

Primary Research Web Survey

A questionnaire was developed as one of the methods of addressing the research questions highlighted in Section 3.3. This questionnaire was e-mailed to 68 companies with certain targeted characteristics. A copy of this survey is located in Appendix A. 3.6.1 Small Businesses Chosen for Web Survey

The web survey was e-mailed out to extremely small enterprises (1-9 employees), and to small enterprises (10-49 employees). No larger firms were targeted. Firms from a variety of backgrounds were chosen get an even spread across all industries. The industries chosen varied from graphic design firms to small construction companies. About half of the surveys were sent out to businesses that I personally was familiar with, or had some experience with. The other half of the surveys were sent out to small businesses primarily located throughout the United States that fit the above criteria. 3.6.2 Geographical Region Chosen for Web Survey

The geographical region chosen was the United States. All regions within the United States were targeted with companies from 18 states receiving surveys. A majority of companies chosen were from the west coast of the US due to the fact that I have more familiarity with small businesses throughout the west coast. I also had access to more information on small businesses that were regional as opposed to national. This information included company size and growth history and was accessed through the regional office of the Small Business Administration.

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3.6.3

Diversity of Businesses Chosen

The following graphs display the variety of small businesses that were included in the web survey.

Marketing/Advertising Wholesale Construction/Arch. Consultancy Communications IT

Figure 3.3: Area of Business Industry

0-1 Years 2-4 Years 4-6 Years 6-8 Years 8-10 Years 10+ Years

Figure 3.4: Number of Years of Business Operation

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0 1 to 5 5 to 9 10 to 19 20 to 29 30 to39 40 to 49

Figure 3.5: Number of Employees

Western States Mid-West States Eastern States South-East States South-West States

Figure 3.6: US Regions Chosen

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3.6.4

Web Survey Logic

The web survey was developed to contain a mixture of yes/no questions along with multiple choice questions. The number of open-ended questions was limited due to time-constraint issues the response rate would fall significantly as a direct relation to the time involved in completing the survey. Therefore, the web survey was formulated to take no more than 15 minutes for the average business owner. The web survey was divided into seven main categories. Following is a brief outline of the categories:

1. General Information (9 questions): These nine questions include opening and closing questions about the small business. The opening questions address industry, size, years in business and other general questions. The closing questions address profits and future intentions.

2. Motivation (3 questions): This section inquires about the owners original motivations and aspirations in starting their business. It comments on the level of motivation that went into the start-up and growth plans that may have been in place since the point of inception.

3. Resources (7 questions): The questions in this section address the amount of resources that were available to the business owner during the early stages of business. The questions distinguish between human capital and financial capital and the availability and importance of both

4. Entrepreneurial Orientation/Ability (4 questions): This section comments on the ability the business owner possesses to efficiently manage the business. It covers entrepreneurial background and competence. This section also explores external factors such as Federal and State regulations and rates the entrepreneurs ability to deal with these factors effectively

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3.7

Secondary Research

3.7.1

Literature Review

The literature research was conducted to discover what past research says about small business growth and the factors that influence growth. As noted before, both small business research and business growth research are topics that have only recently been addressed by researchers. However, the literature found on both

subjects was well focused and thorough. The literature review was limited not only to US-based research, but included European-based research as well. The complete literature review is located in Section 2.

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4 Results
4.1 Survey Response
From the total of 68 online surveys e-mailed out, 18 useable responses were received, representing a 26.5% response rate. 12 of the responses came within ten days of initial contact with the small business. Six responses were received after sending out a reminder letter. Four responses were received from business owners who did not want to participate. The remaining 46 did not fill out the survey even after a second reminder had been sent out.

4.2

Survey Results

The results for each section of the questionnaire are collated in Appendix E. Analysis and discussion of selected results appears in Section 5.

4.3

Interviews

A total of two qualified professionals were interviewed for this project. The first was Sy Maselow, a volunteer and business owner working for SCORE (Service Corps of Retired Executives). This interview took place at the Seattle, WA division of the SCORE offices located inside of the Small Business Administration. This interview lasted approximately 50 minutes and was recorded for accuracy. The second interview was with Brian Headd, an economist with the Office of Advocacy, a division of the Small Business Administration located at SBA national headquarters in Washington DC. This was a phone interview that lasted approximately 25 minutes. The summary of these interviews can be found in Section 5.9.

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5 Findings
5.1 Overview

The findings section is organised into the following general sections:

Web Survey Findings 1. General Questions 2. Motivation 3. Resources 4. Entrepreneurial Orientation 5. External Factors 6. Lifestyle 7. Concluding Questions

Interview Findings 1. SCORE 2. SBA

Research Questions Findings Hypotheses Findings

Sections 5.1 through 5.8 focus on the web survey conducted. Section 5.9, Interview Findings, is a summary of relevant points that were gained during discussions with Sy Maselow of SCORE, and Brian Headd of the SBA. Section 5.10 addresses the research questions identified originally in Section 3.3. The final section tests the hypotheses on business growth originally identified in Section 3.2 by analyzing the hypotheses against the research questions.

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5.2

Opening General Questions

5.2.1

Location

The geographical variety of responses received was diverse. The businesses that responded were located all over the United States with a strong focus on the western states. Five of my responses came from Seattle, WA, and three others came from Washington State. Other businesses were located in Oregon, California, Nevada, New York, Illinois, Florida and Colorado. 5.2.2 Industry

The three major industries that responded to the web survey were marketing/advertising, wholesale/retail/and construction/architecture. These industries responded with 22.2% each. The next major industry was consultancy (11.1%). Other industries that responded were finance/accounting, manufacturing, banking and computer/network consultant. 5.2.3 Years of Operation

A wide range of responses were received for length of business operation. The minimum number of years was zero, while the maximum number of years was 23. The mean length of business operation was 8.88 years with the median being 7 years. 5.2.4 Sole-Proprietorship

Since the survey targeted smaller businesses, 72.2% of the respondents started their businesses as sole-proprietorships. The other 27.8% respondents did not meaning these businesses were started as partnerships, limited liability partnerships or corporations. 5.2.5 Employees

The opening questions continued with a general question about business ownership and employment. Since employment is one method to measure growth, it is essential to document how each small business administers the labour process. The employment questions were divided into two parts: intentionality and actuality. About three-quarters of respondents reported that they started their small business with the intentionality of eventually hiring employees. This is a positive factor concerning small business growth since it is difficult to obtain significant growth

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without hiring any help (Shepherd & Wiklund, 2005). This response was also significant in that it corresponded with the number of sole-proprietorships that responded. Every sole-proprietorship that responded had intentions of hiring employees in the future. The businesses that responded had varied responses on how many employees they currently employed. About one-third of respondents had no employees at the current time. 11.1% employed one or two employees. 22.2% of the businesses employed three to five employees. 27.8% of the businesses currently employed eight or more employees. The only category that received a zero-per cent response was the six to eight employees category. This section was successful in documenting a broad range of business sizes and employee counts.

5.3
5.3.1

Motivation
Growth Plans

The first question directly related to motivation and growth asked the business owner to identify their own motivation level at the point of business inception. The question was scaled from one to five relating to level of motivation to grow the small business. The responses received were centred on the somewhat category meaning that the small business owner had some motivation to grow and expand their business. These respondents either entered a level three or four (high being a five). Approximately 10% responded that they had no growth intentions and another 11.1% responded that they had high growth intentions. The responses were surprising in that growth motivations were slightly on the low side of what was expected. The question was formulated to address the business owners motivation level when they started the business. The respondents were expected to have high levels of motivation at the inception of their business which would eventually lower as they encountered obstacles throughout the lifespan of the business. The 11.1% of respondents that responded with a high motivation level at inception seemed slightly low. The next question in the series directly asked the business owners about the construction of a written growth plan at the start of their businesses. The question was formulated to discover how many of the small business owners had taken time to research and write a comprehensive growth plan report for their business. A positive response would indicate the seriousness of growth intentions from the inception of the business. There was a 50/50 percent response on this question. Relating this question to the previous question, the responses were on target with 45

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expectations. In the previous question, respondents that listed some growth intention up to very high growth intention totalled 77.8%. It seemed fitting that about one-half of the respondents actually took time to write a detailed growth plan. The assumption was that the response would be slightly less due to the fact that this is a difficult process which requires some training, expertise or experience to complete. The construction of the growth plan is one of the first steps to growth, and the next question was formulated to determine the level to which the growth plan was followed. The business owner was asked just how closely they followed and implemented their respective growth plans. Obviously, half of the respondents were exempt since they had not written a growth plan. With the other half, the results were focused on the upper levels of growth. Approximately 80% of the respondents with growth plans said that they followed them either somewhat well, or better than somewhat. The other 20% of respondents said they did not do a good job at following or implementing their written business plan. Since growth plan formulation is a clear indicator of strong motivation (Appendix D), these questions provided insight into the small business owners motivation.

5.4

Resources

The next section of the survey continued with the same outline as the literature review. The subject of resources available to the business owner was the topic of the next set of questions. These questions were divided into two sub-sections: Human Financial

The survey was concerned with inquiring about both the general and specific human capital that was available to the owner. This helped relate the survey to exactly what was researched in the literature review. 5.4.1 Human Capital

The first question in the resources section addressed the general human capital that the business owner possessed. The question provided insight into the amount of general work experience the owner had before starting their small business. This work experience was labelled as non-specific to the small business. The results received provided a minimum number of years as zero, and a maximum number as 15 years. The mean number of years was 6.41, and the median number of years was 5.0. This particular question was designed to explore the amount of work 46

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experience not related to the business that the small business owner was now involved in. The following question addressed the specific human capital that the small business owner possessed. The question was in the same format as its predecessor, but asked about the specific amount of job experience the owner had. This specific experience was defined as directly applicable to the business that the owner now operated. The minimum number of years reported was zero, and the maximum number of years reported was 12 years. The median number of years of experience reported was 5.6, with the mean number of years reported at 5 years. The third survey question in the resources section asked about the importance of this specific work experience. Once again, this addressed specific human capital, but made the owner comment on the relevance of this human capital. The question asked specifically: How helpful was the specific work experience to you as a business owner? The responses received were on the high end of the spectrum. Approximately 10% of respondents said their specific business experience relevance was either very low, or low. 29.4% of respondents said that the experience was somewhat helpful to them as a business owner. While 58.9% of respondents said that their specific work experience had high, to very high relevance to their role as a business owner. The next question continued with the relevance of experience that the business owner has at their disposal. The question asked, At the time of business inception, how developed were your skills specific to your line of work? This question was designed to assess the specific skill set that the owner had at the time of start-up. The responses were clearly focused on the somewhat category. Almost half (44.4%) of the respondents replied that they had fairly developed skills as a business owner at the time of start-up. No respondents said their skills were low, and 27.8% of respondent said that they had a high level of developed skills related to their business. The remaining 27.8% of respondents were in the high or low middle. The next two questions under the resources were focused on the education level of the business owners. These questions were formulated to take note of just how much specific human capital the owners had at their disposal. The first of these two questions asked how many years of formal education the owners had specific to their business. At the low end was zero years of education specifically related to the business at hand. At the high end was 21 years of relevant education. The mean number of years education was 4.65 years and the median number of years was 4

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years. The second of the two questions asked the extent of education that the business owner had received. 23.5% of respondents had not completed a four-year degree, 41.2% had received a four-year degree, and 35.3% of respondents had received a post-graduate degree. The final question in the resources section addressed financial capital. The question was designed to find out how much finances meant to the small business owners and how relevant the capital would be in obtaining growth. This section was short and directly to the point asking If financial capital were more readily available, would it have been easier to obtain business growth? Fifty-two of business owners responded with yes. The remaining respondents (47.1%) answered No. (note: one person did not respond).

5.5

Entrepreneurial Orientation / External Factors

The literature review revealed that entrepreneurial orientation refers to the basic abilities that a business owner needs to efficiently run and manage a business to its fullest capability. The traits that E.O. refers to can be innate or learned, but they result in operating a business efficiently, and taking advantage of every opportunity at every different stage of the business. The next section of the survey started with a question regarding the difficulty of the hiring process. This question was formulated to analyze the business owners internal ability to deal with external factors. The exact question was: If you hired employees for your business, how difficult was the hiring process. This was a scaled question intended to examine the general outcome of the hiring process. About a third of the business owners replied N/A due to the fact that they had no employees. With the rest of the respondents, 5.6% responded with the fact that it was a very difficult process, 5.6% responded with the fact that it was a very easy process. About 17% of the respondents were right in the middle, while 22.2% said it was somewhat difficult. The remaining 16.7% responded that it was somewhat easy. So, the outcome of this question was that 38.9% of respondents were on the difficult side, 22.3% were on the easy side, and the rest were either in the middle, or it was not applicable to them. The assumption was that the hiring process would be more difficult than not. This process is commonly known to be extremely time-intensive. It is not something that a business owner wants to be spending much time on. However, the survey results point to the fact that the hiring process is not as difficult as the assumptions stated.

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The following question was directly related to the real meaning of entrepreneurial orientation. It was a question that made business owners assess the qualities that lead to excellent small business management. The question asked whether the respondents believed that good management was a result of innate qualities or learned qualities. This was a scaled question to allow the possibility of an answer that combined both. Most respondents responded that the ability to be a competent business manager was a result of innate ability. A third of respondents replied that it was an innate ability. About 20% replied it was mostly innate. Another third of respondents said it was somewhat innate, while 11.2% said it was mostly or all learned. These results gave a glimpse into the mind of the small business owner. The results reveal that entrepreneurial orientation is truly something that the respondents believed to be a strong factor in business ownership. The next question was designed to question the competence of the business owner. The question asked how competent the small business owners felt about their capabilities in running their respective businesses. This question was scaled so that the responses ranged from not competent to very competent and everywhere in between. It was important at this stage to get a feeling of how each business owner rated themselves as managers. Sixty-six percent of respondents replied with very competent, while the other 33% replied with somewhat competent. This was an important question to ask in two ways: one, in that it let the respondents reflect upon their own abilities and respond to a question that is rarely asked of them, and two, to relate to the previous question about natural managerial ability. Section 6 elaborates on this relationship. The focus of this paper is not concerned with external factors that inhibit small business growth; however, it was important to obtain data from the business owners as to whether there is a major external/environmental factor that stands out when they think about business growth. The external factor questions help when paired with the entrepreneurial orientation questions. Analyzing these two types of questions together can give a better view on the ability of the small business owner to cope with external factors. These questions addressed any outstanding external issues that the entrepreneur might have. They were included to take note of any additional factors that might contribute to this paper. Two questions were asked regarding external factors. The first one was a multiple choice regarding external regulations. The question read: What external factors (if any) have impeded the growth of your business. Federal, State and local regulations were listed as options along with labour laws and an other category and a none category. A 27.8% rate

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was received on all regulation boxes, and an 11.1% response on labour regulations. In the other box, 55.5% of owners polled supplemented with individual answers. Other responses were as listed: two comments on technology concerned with expense of software, one comment on research and development, four comments on increasingly complex tax issues, three comments elaborating on State regulation, and one comment regarding OSHA, the Occupational Safety and Health Administration of the US.

5.6

Closing General Questions

The last four questions were focused on the attitude of business owner towards their business. The first question in this section asked to what extent the business in question was a lifestyle business as compared with a profits-based business. This was a scaled question in order for the middle ground to be documented. The results ended up being centred on a mix of the two. About 10% of the respondents replied with leisure-based business, 55.6% responded with mix, and 33.4% responded with profits-based business. The answers were well spread, and not surprising. The following question asked how strongly money and profits figured into the small business operations. Once again, the question was scaled for more range. The results were of no surprise with 88.9% of the respondents marking strongly or, very strongly. The remaining 11.1% responded with either little or, very little. The next question asked: How many years in the future do you see yourself running your small business. This question was formulated to document the small business owners future aspirations. The answers were bundled groups of years with 5.6% choosing 1-3 years, 50% choosing 4-8 years, 22.2% choosing 9-14 years, and 22.2% choosing as long as possible. The results were surprising since half of the respondents showed interest in owning their businesses from the next 4-8 years. This seems like a short period considering that the mean age of the businesses was 8.8 years. The final question asked the business owners how they felt about the growth they have achieved so far in the life of the business. It was formulated to measure how satisfied these owners were, and how much growth they felt they had accomplished. An overwhelming 50% replied that they were extremely pleased, while 44.4% were somewhat pleased. The remaining 5.6% replied that they were not pleased. This question ended the survey and provided insight into how pleased these business owners actually were.

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5.7

Interview Findings

My intent with the interviews I conducted with Sy Maselow of SCORE and Brian Headd of the SBA was to gather a broad range of information from two sources with different viewpoints. Sy is a retired banker and current small business owner based in Seattle, US. Brian is currently an economist working with the Office of Advocacy at the SBA in Washington D.C. I believe the information gained from these two interviews was extremely valuable to this study and my recommendations for future studies. 5.7.1 SCORE Interview

Sy Maselow has a banking background and therefore a bankers viewpoint on many of the issues that were discussed in the hour that I was there. He job at SCORE is to assist new business owners with emerging problems. He attends to business owners who have been in business for 2-3 months. The most common problem that Mr. Maselow encounters is funding. His viewpoint on funding a start-up, or funding growth is that the business owner should first borrow from family, friends, or acquaintances and go to the banks as a second option. He is of the opinion that if growth is going to happen in someones business, the first thing the business owner needed to address is funding. On the topic of growth not related to funding, Mr. Maselow is a serious advocate of the written growth plan. He says that most business owners who come in for help dont know the first thing about writing a business plan. A business plan, or growth plan, is like a roadmap, he said at one point. Banks will need a business plan this is how they know whether or not to loan out money. Mr. Maselow defines growth as, Increase in volume, increase in profits. When we discussed the three major issues that I was researching, he honed in on resources. Mr. Maselow spoke not only of financial resources, but of others such as the library, or the internet. He said, The information that you can gain from doing just a little bit of research is tremendous. He expanded on this by noting that external factors such as taxes and labour laws can be perplexing, but the responsibility falls on the small business owner to seek help or self-education in solving these problems. This part of the interview addressed my questions on entrepreneurial orientation and human capital. Mr. Maselow believes that the external factors that make running a business difficult can be easily dealt with if the business owner has the correct internal resources to complete the tasks.

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5.7.2

SBA Interview

Brian Headd is an economist with the Office of Advocacy at the head offices of the SBA in Washington DC. What I focused on during my interview with Mr. Headd was the statistic about the current state of non-employer businesses in the United States. I wanted to know what was driving the growth of this type of business. When asked this question, Mr. Headd stated that it was about the types of businesses that were growing and technology was also playing a significant role in this current trend. Mr. Headd spoke of one-man organisations that were a product of the last decade of technological development. He talked about the rise of the IT consultant and web designer. He said, These businesses really take no more than one person to operate, and they can pay off reasonably well there is no need for employees. Mr. Headd also spoke about the fact that over the last decade, a trend is emerging where many employed individuals with jobs are setting up small businesses. These include, but are not limited to technology such as computer consulting or web design. He said that a person can set up a sole-proprietorship, or microbusiness, in a trade like IT consulting and treat it like a hobby. Therefore the business owner can hold a 9-5 job and consult in the evenings and on weekends. This, in turn creates a wealth of small businesses that have the characteristics on paper of regular businesses, but in fact are hobby or lifestyle businesses turning a modest profit. 5.7.3 Interviews Conclusion

With the two interviews I conducted, I found exactly what I was looking for: two viewpoints on the topic of business growth that were very different from each other. Mr. Maselow has a very traditional business background and also small business experience. His answers addressed financial and human capital while also touching on entrepreneurial orientation. Mr. Maselow was an incredibly important aspect to the research in this paper since he meets with small business owners on a daily basis and hears the frustrations they voice concerning sustainability and growth. Mr. Headd has more of an academic viewpoint on small business and growth. Being an economist, he looks at numbers, current trends and various other aspects concerning small business. Mr. Headd had a viewpoint that I had not taken into consideration his take on technology and the rise of the non-employer business. His responses reflected the fact that just because many of these non-employer businesses are emerging, doesnt mean the business owners have any motivation, or need to grow.

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5.8

Addressing the Research Questions

Section 3.3 lists three research questions that developed from the literature review. The literature along with the web survey and the interviews provide substantial answers to these questions. In this section, the research questions will be addressed.

R1

Motivation

Does a high level of motivation lead to an Increase in business growth?

The question of motivation is best addressed in the literature review and the web survey. The literature review included Ajzens Theory of Planned Behaviour which states that strong attitudes regarding a behaviour will likely bring about strong behaviour. However, Wiklund and Shepherd (2003) state that there are too many variables to apply Ajzens theory to small business growth. The best answer to research question #1 is no. Birley and Westhead (1994) conducted a thorough research experiment in 1994 which included 405 businesses. No evidence was found linking high motivation to increased business growth. Wiklund and Shepherd (2003) also conducted a motivation/growth study in 2003 which included 630 businesses. The results proved that there was no clear link between a high level of motivation and a high level of small business growth. In the survey conducted for this paper, small business owners were asked what level of motivation they had at the inception of their business. Almost 40% of the respondents that answered higher than somewhat all had relative success in growing their businesses to a level that they were satisfied with. But looking further on in the survey, these same businesses that had high motivation also had a high level of education and more than five years specific work experience in their respective field. It was these businesses that also stated that the high level of specific work experience was very helpful to them as small business owners. Both the literature review and the survey answer the motivation versus growth question very clearly: it takes more than a high level of motivation to grow a small business. Along with a high level of motivation, it also takes specific human capital including education and work experience specific to the job at hand.

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R2

Resources

Is human capital or financial capital more effective in creating high-level growth?

Does financial capital help in the process of creating high-level small business growth? Yes. Does human capital help in the process of creating high-level small business growth? Yes. However, only 53% of the businesses in the survey conducted said that financial capital would have made it easier to accomplish growth. Compare this to the 88.3% of respondents who agreed that work experience specific to their businesses was beneficial in the process of becoming a business owner. In the literature review, Hugo and Garnsey stated that financial capital is not completely necessary for a small business to grow effectively (Hugo & Garnsey, 2005). They argue that small business owners may become even more innovative due to lack of financial capital. Beck, et al. (2001) noted in their research of over 4,000 small businesses that financial constraints did affect business growth significantly. In fact, small businesses were most adversely affected by lack of finance. However, it wasnt just funding that affected the small businesses, but also the process of obtaining funding and the bureaucracy that goes with it. It is true that a lack of funding can kill off small businesses more effectively than larger businesses. This is revealed in the literature review and also in the interview with Mr. Maselow of SCORE. Mr. Maselow said that a source of funding was the most common problem that he encountered when helping out small businesses. But Mr. Maselow also noted that most small business owners just dont know how to obtain funding, and that is one of the reasons SCORE exists. So rather than having problems obtaining funding, most small businesses are having problems with the bureaucratic process that in most cases precedes funding. In other words, most small business owners are finding the bureaucratic process of obtaining funding to be the most difficult step in securing capital for their businesses. The literature review along with the survey confirm that human capital, particularly specific human capital is more beneficial to small businesses than financial capital. If small business owners have a good level of specific work experience along with a higher level of education, they have an easier time figuring out the process of growing a small business. This experience and education can make small business growth much easier when the process starts.

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R3

Entrepreneurial Orientation

Is entrepreneurial orientation a major contributor to small business growth?

The immediate answer to this question is: absolutely. As described in the literature research, every published document on entrepreneurial orientation stressed that it is a major contributor to growth. The small business owners who responded to the survey also supported this conclusion. Over 80% of the small business owners asked said that their entrepreneurial skills were at a high level by the time they started their businesses. These same business owners said that they were happy with the growth that they had achieved to date. As Wiklund (1999) says, Entrepreneurial orientation contributes to performance, defined as a compound measure incorporating dimensions of growth as well as financial performance. Entrepreneurial orientation incorporates every positive trait that it takes to be a competent, successful small business owner. It is the decision-making, the risktaking and the goal-setting traits that every small business owner needs to succeed in growing their business. As the literature review stated, entrepreneurial orientation can be either a set of natural (innate) traits, or it can be a set of learned practices. It is true that these traits can contribute to small business growth, but one question remains: How do small business owners obtain them? Small business owners surveyed responded with a mix of results when asked whether managing a small business was a natural skill or innate skill. Thirty-three percent of the business owners stated innate, however, 33% stated it was a mixture. Although outside the scope of this paper, it is interesting to note whether entrepreneurs feel like they possess an innate or learned skill. It has been documented repeatedly that many successful business owners were not born with natural business talent; rather it was something they learned through experience. Along with the literature review answering research question #3, the business owners responding to the survey also contributed. When asked how confident they felt managing a small business and utilising the skills associated with that, 66% of the small business owners responded very confident with the other 33% responding, somewhat confident. The 66% of owners who responded very confident also responded that they were pleased or very pleased with the growth that they had accomplished with their small businesses so far. Mr. Maselow also contributed to this answer by stressing that the process of growing a small business is made easier if the owner has the appropriate entrepreneurial capabilities. 55

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5.9

Addressing the Hypotheses

The hypotheses that proposed in Section 3.2 were formulated from a series of observations that I personally have gathered over the last seven years as a business owner. They are based on observational research not academic research. They are based on my last seven years as a small business owner striving for growth they are also based on my interactions with other small business owners and organisations like the Small Business Association. When analyzed against the research questions that were addressed in Section 5.10, they can be tested and proven to be true or untrue.

Hypothesis #1: Growth difficulty is a result of the lack of appropriate internal business capabilities of the small business owner colliding with increasingly complex regulatory systems

As research questions #2 and #3 answered to a significant extent, small business growth can be compromised if the owner doesnt possess the appropriate experience, education or business traits that are needed to successfully grow a small business. This research in this paper includes data from the literature review, interviews and survey that all support this concept. Sy Maselow, the SCORE employee, stated that information is everywhere in the library and online business owners must know how to access it and what to do with it. In my personal experience I have found this to be true. I have witnessed small business owners struggle with labour laws, taxes and State regulations. I believe that part of the blame sits with the entrepreneur and the other half with the increasingly complex regulations that small business owners must deal with. Although human capital and entrepreneurial orientation can be significant factors in determining small business growth, they are only one side of the equation. The other is the external circumstances that the small business owners are applying their skills to. These can be Federal or State business laws, tax laws, licensing laws, or many other factors that small business owners will encounter at some point. As noted in Section 3.2, while the United States is one of the easiest countries to start a business, its world rankings on licensing (22 out of 175) and tax systems (62 out of 175) do not rank so well. This points to the fact that a novice can start a business, then fall into a web of complexity when it comes to dealing with the increasingly difficult regulations that go along with owning a business.

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The survey polled business owners on what external factors have impeded the growth of their businesses. A total of 84% of the business owners responded with either Federal regulations, State regulations or City regulations. Tax laws was an answer that 22% of the small business owners gave as a significant factor. This data along with the World Bank ease of doing business rankings shows that now more than ever, business owners are dealing with increasingly difficult external issues. The information documented in this paper proves my first hypothesis. External factors and bureaucratic issues are becoming more of a problem for the small business owner to deal with. This means that at the present time a business owner must keep abreast of the new changes in the external environment and learn to manage them appropriately. Since small business is extremely important to the US economy, the external and bureaucratic factors are not trying to kill off the small business person in fact, the State and Federal governments need small business to succeed. The external factors are just a reflection of the increasingly complex society we live in. The small business owner must realise that there is plenty of assistance available to them - they just need to have the appropriate tools to find and utilise it.

Hypothesis #2: Small business owners either dont require or cannot find qualified personnel to help grow their businesses

As stated at the beginning of this paper, employee counts are a telling factor in measuring small business growth (Shepherd & Wiklund, 2005). The US census data for 2002 shows that more small businesses are choosing to grow less. Hypothesis #2 is concerned with the increasing trend of non-employers in the US. The hypothesis states that small business owners either are requiring fewer employees due to technology or other reasons, or the owners are finding it increasingly difficult to hire employees that are qualified therefore foregoing the hiring process. After extensive research, I have found most of hypothesis #2 not to be true. Hypothesis #2 developed from personal experience where I would witness fellow small business owners start their own businesses and not show any motivation to hire employees therefore not grow their businesses significantly. In the last fifteen years, the technology boom has created thousands of jobs for IT professionals. Many of theses professionals have started their own non-employer businesses in

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consulting, programming or web design. This fact was backed up by Brian Headd, an economist with the Small Business Administration. Mr. Headd spoke of a newer trend involving more start-ups that have no need for employees. He also described how more individuals, especially in the IT industry are starting sole-proprietorships while at the same time being employed by another company. This factor is contributing to the rise in the non-employer statistic. The first part of this hypothesis holds up since more individuals are starting businesses with no initial motivation or intention to hire employees. The second part of the hypothesis is more complex, and proves to be untrue. This part was based on my personal experiences with the employment process and the complexities that it brings to the growth of a small business. In my experience, I have found that the employment landscape has changed dramatically even in the last seven years. Not only are labour laws becoming more strict, but employees themselves are becoming less reliable and loyal than in the past. For many of my fellow small business owners, the employment process has become a full-time job. There is more turnover and less loyalty to small business than ever before. I have heard many stories from small business owners of employees who are willing to do less work and demand more money. I have also had first-hand experience with this in hiring employees for certain projects. Since the mid 1990s the US economy has been relatively strong, only lately has there been any sign of slowing down. This has resulted in an employee base that has more options and therefore less tolerance for any job that demands too much of them. This part of the hypothesis, however, was proven not true by my research. The survey showed that 72% of small business owners started their businesses as sole-proprietorships. The same businesses had the intention of hiring employees when they started their businesses. Of the businesses surveyed that have dealt with the hiring process, only 6% found the hiring process difficult. In addition, when questioned about external factors that hinder the growth process, only 11% responded with labour laws. When asked about finding qualified labour for small businesses, Mr. Maselow at SCORE dismissed the notion saying that he rarely sees small business owners who are having trouble with the hiring process. More of what he sees on a daily basis seems to support hypothesis #1: External factors are becoming more complex, and most small business owners do not have the internal resources to deal with these factors appropriately.

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The first part of hypothesis #2 proved to be true since there are an increasing number of employers who have no need or motivation to grow their businesses. In this respect, the non-growth is completely the small business owners choice. The second part of hypothesis #2 proved to be untrue since the data in this paper did not find truth in the statement. Of the small business owners that were included in this final project, it seems that if they had the initial motivation to grow their small businesses, the hiring process was not a factor that hindered their growth to any significant extent.

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6 Conclusion and Recommendations

6.1 Limitations of Study
The major limitation of this study was the time constraint involved in completing this project. The subject of this paper could easily be researched for 6-12 months after all, small business growth is a difficult and complex topic of study. The time constraint was felt throughout every aspect of this research. Still, the information presented in this final project is useful and constructive. Some aspects of this project that were compromised as a result of the time constraint are as follows:

Number of companies involved with survey If time were of no issue, the number of companies would have been quite extensive. As it stands, the sixty-eight businesses that were sent the online survey were the most that I could find in the time period that were relevant in some way to the research. This also leads into another limitation of the study which was the number of responses I received.

Number of responses to the web survey The 26% of responses for the web survey is about average, however the number questioned in an average study is usually much higher. If I had the time to poll 4,000 businesses such as Beck, et al. (2001) in their study, a 26% response rate would yield 1,040 results. This amount of responses could prove to be much more persuasive in obtaining absolute results. However, the survey in this paper still provides significant findings from small business owners.

Number of interviews There are many qualified people in the US that would have been interesting to interview. As it stands, it was difficult enough to coordinate the interviews that I conducted. However, I supplemented these interviews with my years of small business experience. This experience helped me in asking the right questions to qualified individuals from a business owners viewpoint. This, in turn, helped me to get the most out of my limited interviews.

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6.2

Recommendations for Future Research

The process of examining factors that affect business growth is a complex and intense process. Since the research on this topic is not quite as extensive as other business topics, it is a challenge to locate relevant information that concerns both business growth and small businesses. The objective of this paper was to discover aspects of the research that had not been completely explored, or to find a topic that would provide material for further study. I believe this paper achieves that objective. While researching entrepreneurial orientation, a term that has not been around very long (see Section 2.10), I found quite extensive information on what it was, but not a lot of information on who has it and why. I found research that investigated whether entrepreneurs were made or born, which approaches the topic, but doesnt fully explore all of the dimensions. The introduction stated that for the amount of emphasis and importance put on entrepreneurs and the creation of small business in the US and the world, there is little documentation that explores who these entrepreneurs are. Entrepreneurial orientation is a fascinating topic, but one that will need to be explored further if it is to be understood completely. Another area where I found a lack of research was the area of technology and how it has contributed to the growth of the non-employer small business. This was a topic that was brought up in hypothesis #2, and also by Mr. Brian Headd of the SBA (see Section 5.9.2). He mentioned that a possibility for the rise in non-employer businesses is the fact that many of these businesses are small, one-man, tech-based consulting firms. He also mentioned the fact that recent technology has infiltrated the realm of small business, taking jobs that would have been staffed ten years ago. The second point is the same argument that has been around since the industrial revolution; however it may be worth exploring on a small business level. I conducted some topical research on the topic after completing the interview, but did not find any extensive amount of research on the subject. I assume there is a lack of research on this topic due to the fact that it is a relatively new trend in small business. However, a study devoted purely to these types of small, non-employer, tech-based businesses would be extremely beneficial to the overall study of small business.

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6.3

Achievement of Research Aims and Objectives

The intentions of this final project were divided into two different sections: general objectives and personal objectives. I listed three general objectives in Section 1.2.1: 1. Identify the major factors contributing to small business growth through academic literature research. Present hypotheses on the subject of small business growth. Propose research questions based on extensive literature research 2. Explore these growth factors through a series of surveys of small businesses and interviews. Discover what (if any) growth factors the small business owner struggles with and to what extent non-growth is the business owners choice. Apply my own experience as a business owner to further examine the challenges of small business growth 3. Examine findings and answer research questions. Test hypotheses based on research and findings. Conclude with summary of findings and propose topics for future research

The first two points have been explored in detail throughout the paper, and the final point will be completed in this section. In Section 1.2.4, I stated two personal objectives that I wanted to accomplish with this final project. These objectives were: 1. I am interested in finding out more about the factors that entrepreneurs struggle with in growing their businesses 2. I am interested in using these findings to analyse myself as a business owner and my small business. The first of my personal objectives has been met and surpassed; the other will be an ongoing process that may continue over the next few years. Throughout this research, I have explored issues of growth that I was not completely familiar with. I have spoken to business owners, consultants and economists. The personal knowledge that I have gained from conducting this research is invaluable to me as a business owner and an individual. The next step is to take this information and see how I can apply it to my own situation with small business growth. This will be an interesting process now that I have a paper full of ideas to work with. I believe that I have fully accomplished the objectives I set for myself in Section 1.

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6.4
6.4.1

Summary and Conclusions

Summary of Research

At the beginning of this paper, the following question was asked: Why are more US small businesses choosing to forego the hiring process and therefore foregoing significant growth? This question was anchored with two sub-questions: What factors of small business growth (if any) are small business owners struggling with? To what extent is non-growth the small business owners choice?

The first sub-question was formulated to help discover why more small businesses are growing less. The answers have been documented extensively throughout this paper. The research in this paper uncovered many factors associated with small business growth, but none as prominent in published research as motivation, resources, and entrepreneurial orientation. Using these three factors as a base to research from was helpful in many ways; it set strict parameters for the research, and simultaneously provided a documented base from where I could branch out. With the second sub-question, the intent was to explore the notion that non-growth may not be a product of certain internal factors, but a personal choice by the small business owner. This was found to be true with some of the small businesses that I polled in my survey (Appendix E). The fact that increasingly more businesses are non-employers is not a true indication that all small businesses are struggling with internal growth factors. This research supports the notion that it could very well be the small business owners choice. This concept is supported by Mr. Maselow, an employee with SCORE, who counsels small businesses on a daily basis and sees the problems that small business owners consistently struggle with. However, this research also documents the fact that there exist small business owners who strive for high-level growth but struggle to achieve it. The conclusion to the main question posed at the beginning of this paper can be obtained through a variety of means. This paper analyzed the question of nongrowth from an internal view on the growth of small business. To answer a question that asks why non-employer businesses are increasing, it is proper to first ask: What are the factors that may be stifling small business growth? Based on this question, it

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is logical to investigate the major factors involved with small business growth (Section 2.7). These factors provided the basis for my survey and interview questions. The answers to these questions were compared with the hypotheses to test their accuracy. The research I compiled in this paper proved hypothesis #1 and disproved hypothesis #2. However, the research answered all of my research questions and ultimately answered the questions posed at the beginning of this paper.

6.4.2

Conclusions

The literature review, survey and interviews in this paper revealed three significant issues on the topic of small business growth: 1. Lack of financial resources is not a significant factor in stunting small business growth 2. Entrepreneurial orientation and a lack of relevant human capital is a factor that small business owners are currently struggling with 3. The recent trend of non-employer businesses in the US, and therefore trend of low business growth, may be the small business owners choice

Lack of financial resources is not a significant factor in stunting small business growth Lack of financial resources does not necessarily mean lack of business growth (Section 2.9.2, Appendix E). What is much more important in growing a business is the human capital that a business owner can acquire. Specific human capital is more important than financial capital in the growth of a small business (Appendix E). Eighty-eight percent of small business owners who claimed growth also express the fact that specific human capital is extremely important to them (Appendix E). The most compelling research on this topic is from Hugo and Garnsey (2005) who state that a lack of financial capital may create more innovation and growth in small businesses.

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Entrepreneurial orientation and a lack of relevant human capital is a factor that small business owners are struggling with A certain number of entrepreneurs are having difficulty adjusting to more complex regulations and systems (Section 5.11). Small business surveyed stressed that Federal, State and tax laws are external factors that made growth difficult. Evidence gained through literature and interviews found evidence to support the fact that difficulty in dealing with external factors points to a lack of entrepreneurial orientation and/or relevant human capital. Mr. Maselow of SCORE stresses that although these external factors are not simple to figure out, failure to do so demonstrates a shortcoming with the business owner and not the system.

The recent trend of non-employer businesses in the US, and therefore trend of low business growth, may be the small business owners choice This aspect of the non-employer statistic references motivation. The major finding of research devoted to motivation in growing a small business was that the profit motive as Penrose (1995) described is not a strong factor integral to small business growth. Shepherd & Wiklund (2005) say ambition, the desire to achieve by personal success is a major factor to motivation. Cromie (1987) says autonomy, achievement, and a desire for job satisfaction are significant motivators for the creation of small business. These theories on motivation reinforce what Mr. Brian Headd stated: Many non-employer small businesses started in the last ten years are not motivated by growth. Mr. Headd stressed that a number of these businesses are seen as hobbies and not as profitable businesses. Growth is not a motivating factor for many of these small business owners; therefore, their small businesses show little growth.

Non-employer counts have been steadily rising in the United States (US Census, 2002). Because this is a recent trend, the reasons for this are not entirely clear. According to academic research, the steady rise in non-employer counts points to the fact that more businesses are choosing to grow less (Shepherd & Wiklund, 2005). Research shows that some small business owners are struggling with certain internal factors of growth. Out of the three major aspects that contribute to small business growth, small businesses are currently struggling with human capital and entrepreneurial orientation. Motivation for growth, although altered by external factors, does not seem to be affecting growth per the research, survey and interviews. Financial factors are also not currently affecting small business growth, although 65

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most small business owners agree that extra financial stability never hurts. The hiring process is also not affecting small business growth according to the research. Instead, this research finds that growth is overwhelmingly slowed by the small business owners lack of specific human capital and business traits (entrepreneurial orientation). The increasingly complex external conditions and bureaucratic environment increasingly make the internal role of the small business owner ever more detailed and complicated. This research also shows a trend of small business owners who are simply choosing not to grow, therefore contributing to the BLS statistic on non-employers. These business owners start with little motivation to grow, and as a result, they show little growth. These businesses are primarily tech-related, are viewed as hobbies and second jobs. These facts were established throughout this paper, and warrant future research. Since small businesses are fluid and constantly changing, it is important to keep track of trends and take notice of any major changes in their structure. As noted earlier, small businesses are extremely important, not only to the US economy, but to economies around the world. It is evidenced through the research that myself and others have completed on this subject that small businesses are currently going through dramatic change. This is due to a combination of factors; one factor being the rise of technology in the last ten years. This paper proposes that small business owners who are not struggling with major growth factors, simply are not struggling with growth; instead they are involved in a new trend of non-employer business that is not motivated by growth. Should this trend continue, academic researchers and small business owners will need to alter the way they view small business. If businesses continue to become smaller, more agile and able to do more with less, the business environment will change as a result. It will benefit the small business owners and the societies they work in if research continues to develop in this area of small business growth.

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7 Bibliography
Acs, Z.J., 1992, Small business economics: a global perspective, Challenge, p35, 38-44. Ajzen, I., 1991, The theory of planned behaviour, Organizational Behaviour and Human Decision Processes, Vol. 50, p179-211. Becker, G.S., 1975, Human Capital, 2nd ed., Chicago University Press, Chicago, IL. Bellu, R.R. and H. Sherman (1995), Predicting business success from task motivation and attributional style: a longitudinal study. Entrepreneurship and Regional Development, XX, p349-63. Beck, Thorsten; Demirgc-Kunt, Asl; Maksimovic, Vojislav. 2001. Financial and Legal Constraints to Firm Growth: Does Size Matter? MBA dissertation, University of Maryland. Birch, D. 1987, Job Creation in America, The Free Press, New York, NY Birley, S., and Westhead, P., 1994, A comparison of new businesses established by novice and habitual founders in Great Britain, International Small Business Journal, Vol. 12, p38-60. Boswell, J., 1973, The Rise and Decline of Small Firms, George Allen and Unwin Ltd, London Brown, S.L. and K.M. Eisenhardt, 1995, Product development: past research, present findings, and future directions, Academy of Management Review, Vol. 20, p342-78. Brown, T.E., P. Davidsson and J. Wiklund, 2001, An operationalisation of Stevensons conceptualization of entrepreneurship as opportunity-based firm behaviour, Strategic Management Journal, Vol. 22, p953-968. Byrne, J. 1993, Introduction, Business Week, (Special Edition on Enterprise): p1218. Cameron, R., 2003, Small Business Research Report, Cameron Research Group. Cassar,G, 2004, Entrepreneur motivation, growth preferences and intended venture growth (summary). Babson Entrepreneurship Research Conference, Scotland.

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Covin, J.G. & Slevin, D.P., 1997, High Growth Transitions: theoretical perspectives and suggested directions, in D. Sexton and R. Smilor (eds), Entrepreneurship 2000, Upstart Publishing Company, Chicago, IL. Cromie, Stanley, 1987, Motivations of Aspiring Male and Female Entrepreneurs, Journal of Occupational Behaviour, Vol. 8, No. 3, John Wiley & Sons, UK. Dollinger, M.J., 1999, Entrepreneurship: Strategies and Resources, Prentice Hall, New Jersey. Drucker, P., 1985, Innovation and Entrepreneurship, Harper and Row, New York, NY. Dunkelberg, W.W., and Cooper, A.C., 1982, Entrepreneurial typologies: An empirical study, K.H. Vesper, ed, Frontiers of Entrepreneurship Research, Babson College, Wellesley, MA, p1-15. Garnsey, Elizabeth, 2006, New Firm Growth: Exploring Processes and Paths. Industry and Innovation, Mar. 2006; Vol. 13; Issue 1.

Grant, R.M., 1991, The resource-based theory of competitive advantage: Implications for strategy formulation, California Management Review, Spring, p112135. Gundry, Lisa K. & Harold P. Welsch. 2004, The Ambitious Entrepreneur: High Growth Strategies of Women-Owned Enterprises, Journal of Business Venturing Vol.16: p453-470. Hugo, Oliver & Garnsey, Elizabeth, 2005, Problem-Solving and Competence Creation in the Early Development of New Firms, Managerial and Decision Economics, Vol. 26, p139-148.

Jennings, P. and Beaver, G. (1997). The Performance and Competitive Advantage of Small Firms: A Management Perspective. International Small Business Journal, 15, 2, 63-75.

Kolvereid, L. and E. Bullvg, 1996, Growth aspirations among Norwegian entrepreneurs, Journal of Business Venturing, Vol. 7, p209-22. Lancaster, Geoff, 2005, Research Methods in Management, Linacre House, Oxford.

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Liao, J; Welsch, H; Pistrui, D, 2005, Internal and External Predictors of Entrepreneurial Growth: An Empirical Investigation of the Moderating Effects of Infrastructure Elements, dissertation for DePaul University, Chicago, IL. Little, Steven, 2005, The Seven Irrefutable Rules of Small Business Growth. John Wiley and Sons, Inc, Hoboken, NJ. Lumpkin, G.T. and G.G. Dess, 1996, Clarifying the entrepreneurial orientation construct and linking it to performance, Academy of Management Review, Vol.21, p135-72. Lumpkin, G.T., and G.G. Dess, 2001, Linking two dimensions of entrepreneurial orientation to firm performance: The moderating role of environment and industry lifecycle, Journal of Business Venturing, Vol.16, p429-451. Man, Thomas W.Y; Lau, Theresa; Chan, K.F., 2002, The Competitiveness of Small and Medium Enterprises: A conceptualization with focus on entrepreneurial competencies, Journal of Business Venturing, Vol. 17, Issue 2, p123. McClelland, D, 1965, In Achievement and entrepreneurship: a longitudinal study, Journal of Personality and Social Psychology, 1, p389-392. McGrath, R.G., 2002, Entrepreneurship, Small Firms, and Wealth Creation: A Framework Using Real Options. In: Pettigrew, A.M., Thomas, H., and Whittington, R. (eds) Handbook of Strategy and Management, pp. 299-325, London: Sage. Miner, J; Smith, N; Bracker, J., 1994, Role of Entrepreneurial Task Motivation in the Growth of Technologically Innovative Firms: Interpretations From Follow-Up Data, Journal of Applied Psychology, Vol. 79, Issue 4, p627-630. Penrose, Edith, 1985, The Theory of the Growth of the Firm Twenty-Five Years After, Acta Universitatis Upsaliensis, Studia Oeconomiae Negotiorum 20, 16pp. Uppsala. Penrose, Edith, 1995, The Theory of the Growth of the Firm: 3rd Edition, Oxford University Press, Oxford, UK. Rauch, A. and M. Freese, 2000, Human capital of small scale business owners and business success: a longitudinal study of moderators and mediator, paper presented at the ICSB World Conference 2000, Brisbane, 16-18 June. Rubinfeld, Arthur, 2005, Built for Growth, Wharton School Publishing, Upper Saddle River, New Jersey.

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Schumpeter, J., 1934, The Theory of Economic Development, Harvard University Press, Cambridge, MA. Sexton, D.L. and N.B. Bowman-Upton, 1991, Entrepreneurship: Creativity and Growth. New York: Macmillan. Shepherd, Dean A. & Wiklund, Johan, 2005, Entrepreneurial Small Business: A Resource-Based Perspective. Edward Elgar Publishing Limited. Northampton, Mass. Snell, S.A. and Dean, J.W. (1992). Integrated Manufacturing and Human Resource Management: A Human Capital Perspective. Academy of Management Journal, 35, 3, 467-504. Stevenson, H.H., 1984, A perspective on entrepreneurship, in H.H. Stevenson, M.J. Roberts, and H. Grousebeck (eds), New Business Venture and the Entrepreneur, Harvard Business School Press, Boston, MA. Stevenson, H.H. & J.C. Jarillo, 1986, Preserving entrepreneurship as companies grow, Journal of Business Strategy, Vol. 6, p10-23. Stevenson, H.H. & J.C. Jarillo, 1990, A paradigm of entrepreneurship: entrepreneurial management, Strategic Management Journal, Vol.11, p17-27. Storey, D.J., 1994, Understanding the Small Business Sector, Routledge, London. Thurik, A.R. and A.R.M. Wenneker (2004), Entrepreneurship, small business and economic growth, Journal of Small Business and Enterprise Development, Vol. 11, Issue 1, p140-49. Ward, Edward A, 1993, Motivations of Expansion Plans by Entrepreneurs and Small Business Managers, Journal of Small Business Management, Vol. 31. Wiklund, Johan, 1999, The Sustainability of the Entrepreneurial OrientationPerformance Relationship, Entrepreneurship: Theory and Practice, Vol. 24, Issue 1, p37. Wiklund, J., Davidsson, P., Delmar, F., and Aronsson, M. (1997). Expected Consequences of Growth and Their Effect on Growth Willingness in Different Samples of Small Firms. Frontiers of Entrepreneurship Research. Wellesley, MA: Babson College. Zahra, Shaker & Covin, Jeffery, 1995, Contextual Influences on the Corporate Entrepreneurship-Performance Relationship, Journal of Business Venturing, Jan. Vol. 10, Issue 1, p43.

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Appendix A: Survey Questionnaire

1. What region of the US did you start your business? (open-ended)

2.

What industry is your business in? (open-ended) How many years has your company been in business? 1 0-2 2 3-6 3 7-10 4 11-20 5 21-30 Did you start your business as a sole-proprietorship? Yes No

3.

4.

5.

Did you start your business with the intention of hiring employees? Yes No How many workers do you currently employ not including yourself? If you no longer run your own business, what was the largest number of workers you employed? 1 0 2 1-2 3 3-5 4 6-8 5 8+ Thinking back to when you started your business, what level of motivation did you have to grow your business? 1 low 2 3 some 4 5 high At the inception of your business, did you have a specific growth plan in mind for the coming years? Yes No

6.

7.

8.

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9.

If you answered Yes to question 8, how well do you believe you implemented the growth plan? 1 not well 2 3 somewhat well 4 5 very well How many years of general work experience (non-specific to your business) did you have before you started your business? How many years of work experience (specific to your work) did you have before you started your business? How helpful was this specific work experience to you as a business owner? 1 not valuable 2 3 somewhat valuable 4 5 very valuable At the time you started your business, how well developed were your skills specific to your line of work? 1 not developed 2 3 somewhat 4 5 very developed How many years of formal education (specific to your business) did you receive before starting your business? What is the highest level of education you have received to date? 1 some college 2 4-year degree 3 post-grad degree

10.

11.

12.

13.

14.

15.

16.

If the financial capital were more readily available, would growth have come more easily to you business? Yes No Other If you have hired employees for your business, how difficult was the hiring process? 1 very difficult 2 3 somewhat 4 5 very easy - ii -

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18.

On a scale of 1-5, do you believe that running/managing a business is a natural (innate) skill, or a learned skill? 1 innate 2 3 both 4 5 learned How confident do you feel managing a small business and completing the daily tasks that are associated with it? 1 not confident 2 3 somewhat 4 5 very confident What external factors (if any) may have impeded the growth of your business? To what extent is your business a lifestyle business (something you do for pleasure), or a purely profit-making business? 1 purely pleasure 2 3 mix 4 5 purely profit-based How strongly do money and profits fit into your business operations? 1 not strongly 2 3 somewhat 4 5 very strongly How many years in the future do you see yourself running your current business? 1 1-3 2 4-8 3 9-14 4 as long as possible How pleased are you with the growth you have experienced with your business so far? 1 not pleased 2 3 somewhat 4 5 very pleased

19.

20.

21.

22.

23.

24.

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Appendix B: Questionnaire Logic

Question G0 G1 G2 G3 G4 G5 M1 M2 M3 R1 R2 R3 R4 R5 R6 R7 E1 E2 E3 E4 G6 G7 G8 G9

Category General General General General General General Motivation Motivation Motivation Human Capital Human Captial Human Captial Human Captial Human Captial Human Captial Financial Captial E.O. E.O. E.O. External Lifestyle Lifestyle Closing Closing

Logic Behind Question Location of business Differentiate between different industries Find maturity of business to measure growth in years Differentiate between sole-proprietor and partnership to segregate individual from group Find intentionality on growth when starting business (employees) Find current state of growth with relation to number of employees Discover personal scale of motivation involved in starting business Find original business growth intentions in terms of writing a growth plan Question ability of entrepreneur to follow original growth plan (if any) Find background on gen. work experience to distinguish intentionality behind business Find experience of human capital relating to specific work experience Discover level of satisfaction with personal human capital Find out what skill level entrepreneur was at when business started Relating specific human capital to business growth Expansion on question 14 Find out personal satisfaction with level of financial capital availability General question on human capital and difficulty of finding employees (for growth) Question that uncovers relevance behind entrepreneurial orientation Follow up to question 19 relating competence to entrepreneurial orientation Touches on external factors and relevance Differentiates between lifestyle businesses and profit-based businesses Scales how highly profits factor into business Factors future ambition into present study Rates personal satisfaction of growth in current situation

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Appendix C: Survey Covering Letter

July 28th 2006

Dear Sir/Madam, I am currently a full-time MBA student at Imperial College, University of London. This summer I have been working on my dissertation which is concerned with revealing important factors behind small business growth. The US Census Bureau 2002 report showed that there were 22 million small businesses operating in the United States (Little, 2005). However, in that same report, the census shows that about 17 million of these documented businesses have not one employee. After reading this, I started researching small business growth and the factors behind it. After extensive research, I have found that academic papers seem to focus on three main factors behind small business growth: 1. Motivation 2. Resources 3. Entrepreneurial Orientation/Ability Taking these factors into consideration, I am concerned with finding other factors that may lie behind small business growth. I am currently conducting a survey of small business owners hoping to gather more information on the aforementioned topic. I feel that the information that I collect will be of significant value to my final dissertation. I have selected your business because it directly fits the criteria I am looking for in my project: a small business that has a growth potential. I am hoping that you will be able to help me by filling out a survey I plan on sending out in the next week. The survey will take approximately 10 minutes, and contains mainly multiple choice questions. If you do not want me to send you the survey, please reply to this e-mail. Your help is greatly appreciated. I hope that we both gain something from this experience. Thank you, Michael Casassa, MBA, Imperial College London

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Appendix D: SCORE Interview Transcript

August 29, 2006 SCORE Offices Seattle, WA 10 AM M S M S M S M Mike Casassa Sy Maselow So you come down here on a volunteer basis? Volunteer basis And what is your business experience? Banking Okay. Im curious, commonly what type of problems do business owners

have to make them come in here? If somebody sits down in front of you and has questions? S M Sources of funding Sources of funding. Okay. And is this funding used for start-up businesses

or growing businesses? S M S Mostly, I see start-ups. Okay, so individuals who havent even applied for a business license? Well, they may have been in business for 2-3 months, but thats a start-up.

Actually, I think banks consider start-ups as being anyone who hasnt been in business for two years or more. M S So, if a start-up comes in asking for help, what, typically is your first response. Well, it varies from case to case, but just remember, there is no leprechaun

and no pot of gold. And I will quote the Seattle Times cartoon from years ago: There is money at the end of the rainbow an ATM machine. My other one is: Would you loan a college graduate $80,000 to start a business? M I would, depending on the situation.

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Well, Bill Gatess mother did. In other words, funding is from your own

savings. Parents, grandparents, uncles, cousins. M So if someone comes in here with no financial capital at all, you recommend

using family funding first? S Or go back and save money. Unless you have equity in the home, you can

put up collateral, stocks and bonds, CDs, you have someone to guarantee your loan. After all, banks have obligations to their stockholders. M Now, you having a banking background, is it easier or more difficult to get a

small business loan then, say, ten years ago? S Depends upon the size of bank that you go to. The bank that I was

associated with if you wanted a small loan, we would tell you thats what credit cards are for. Bank of America, Wells Fargo, they are probably all that way. M Do you ever deal with people coming in here me for example that are

looking for ways to grow a small business? S M Yes. We deal with many of them. Say, in my instance, I have no employees, and I am just starting with the first

steps of starting my business. S The first thing we suggest is that you write a growth plan. Because we look at

a growth plan or a business plan as being a road map how to get from phase one to phase two to phase three and on. M S Is that for the business owners own well-being, or for the banks. Both. Like I said, it is like a road map. You may have plenty of funds, but you

dont want to see it going down the sewer. Banks, yes, they normally want a business plan. Thats how they know whether to loan money. M So, if someone comes in here not knowing how to even start a business plan,

what do you do then? S M S Well, most people dont, and that is the problem. But we do have workshops. Oh, you do. And we have materials that we give out on how to write a business plan for

start-up businesses, for established businesses. Cash flow statements, profit and loss statements. M Okay. - vii -

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S M

We charge for the workshops, but we have them. What do you consider business growth? Do you consider it profits,

employees or what? S Increase in volume and increase in profits. After all, to quote somebody: If I

have to wake up every morning and go to work, I want to make as much money as I possibly can. And I dont care if you are working for somebody, or if you own a business. Most of us, we need money to buy food. M The three aspects of growth that I have found are: motivation, resources and

entrepreneurial orientation, or just the decisions one makes to improve their business. Do you consider those aspects to be important? S Resources, it depends upon what you are talking about. How do you grow

the business? Well, the library will help you a lot. You can do a lot of research about where you can sell a particular product, who is going to want that product, where you can make the product, what the demographics are of who would buy it and there on. There are associations that will help you do that, a lot of information also on the internet. We have a library here where you can do that type of research, and the place that I always recommend, the Seattle Public Library. The information that you can gain just from doing some basic research at the library is tremendous. I have seen more computers at the public library than Ive seen at a computer manufacturing plant. M Do you ever have individuals coming in having problems with external factors

such as state regulations, paperwork, taxes, etc.? I know there is a lot of paperwork involved in hiring employees. All your state unemployment, federal 941 forms. S M S Once in a while, but not too often. Those forms are relatively simple. So these external factors are not such a problem? Well, Im not saying that they arent a problem, but we always recommend

that a business owner, especially a new business owner hire an accountant or book keeper. And besides, today its another world because youve got the internet to help you with all of your concerns. Youve got everything in the world on it. Whether you want to use it or not, thats something else. M I hired a couple employees a few years back just for temporary reasons-for a

short period of time and it seemed like the paperwork involved in hiring employees was substantial.

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Well, those forms you only need to fill out once a quarter, like the 941, the W2,

they are fairly simple, but, yes, some people cant figure it out. The state doesnt seem to make the instructions clear enough for everyone. There are a million different businesses out there with a million different people running them. Every type of problem will come up sooner or later. As I tell people, Ive seen almost every type of business except for big ship building small ship building, yes, airplanes, yes, but not large ship building. I even went to the Boeing plant years ago, and then went back to work to the bank, and told my boss: if those people (Boeing) want to borrow money, tell them No! those people do not work! I was shocked at how many employees I saw just standing around doing nothing. Its the Boeing tradition, you over-employ. M S Now, you are partnered with the SBA? I wouldnt say we are partnered, but we are partially funded by the SBA.

Some of our employees are paid through SCORE, and some by the SBA. Myself, I volunteer. M If someone comes in here and wants to know about more resources that they

can access, where do you send them? S There are woman-focused business centres around the state for female

business owners, colleges, basically we have a lot of seminars, trainings all over the state, we have offices all over the state too. One in Tacoma, Spokane, Bellingham M The SBA itself, do they have small business counselling, or is it just through

SCORE? S They do, but its limited.

END

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Appendix E: Web Survey Results

The results of the survey from returned questionnaires are presented below. Some of the fill in the blank questions were not included. Not all questions will total 100% due to respondents filling in N/A or not responding at all.
G0 Where in the US did you start your business? Various Responses

G1

What industry is your business in? Construction/Architecture Wholesale/Resale Marketing/Advertising/Entertainment Business Consultancy Computer/Network Consultancy Manufacturing Finance/Accounting Other

22% 22% 22% 11.1% 5.6% 5.6% 5.6% 5.6%

G2

How many years has your business been in operation? Minimum Maximum Mean Median

0 23 8.88 7.00

G3 Yes No G4

Did you start your business as a sole-proprietorship? 72% 28%

Did you start your business with the intention of hiring employees? Yes No How many workers do you currently employ not including yourself? 0 1 to 2 3 to 5 6 to 8 8+

72% 28%

G5

39% 11% 22% 0% 27.8%

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Michael Casassa

M1

When you started your business, what level of motivation did you have to grow? 1 Low 2 3 Somewhat 4 5 High

11% 11% 39% 27.8% 11.1%

M2

At the inception of your business, did you have a written growth plan for the coming years? Yes No If you answered 'yes,' how well did you implement the growth plan? 1 not well 2 3 somewhat 4 5 very well N/A How many years of general work experience (non-specific to your business) did you have before starting your business? Minimum Maximum Mean Median How many years of work experience (specific to your business) did you have before starting your business? Minimum Maximum Mean Median How helpful was this specific business experience to you as a business owner/manager 1 not 3 somewhat 5 very At the time you started your business, how developed were your skills specific to your line of business? 1 not very developed 3 somewhat developed 5 very developed

50% 50%

M3

0% 11% 22% 66% 0% 50%

R1

Years 0 15 5 5

R2

Years 0 12 5.1 5

R3

5.9% 5.9% 29.4% 11.1% 47.1%

R4

0% 17% 44% 11.1% 27.8%

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Michael Casassa

R5

How many years of formal education (specific to your business) did you receive before starting your business? Minimum Maximum Mean Median

Years 0 21 4.65 4

R6

What is the highest level of education that you have received? some college 4-year degree post-graduate degree If financial capital were more readily available, would it have been easier to attain business growth? Yes No If you have hired employees, how difficult was the hiring process? 1 very difficult 2 3 somewhat 4 5 very easy N/A On a scale of 1-5, do you believe that running/managing a business is a natural skill or learned? 1 innate 2 3 mixture 4 5 learned How confident do you feel managing a small business and completing the tasks associated with that business? 1 not very confident 3 somewhat confident 5 very confident What environmental/external factors have impeded the growth of you Labour laws City Regulations State Regulations Federal Regulations Other

12% 53% 35%

R7

53% 47%

E1

6% 11% 17% 22% 6% 33%

E2

33% 22% 33% 6% 6%

E3

0% 0% 33% 0% 66%

E4

11% 28% 28% 28% 33%

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Michael Casassa

G6

To what extent is your business a life-style business (something you do for pleasure) or a profits-based business? Purely for pleasure A mix of both Purely profits-based

11% 56% 28%

G7

How strongly do profits figure into your business operations? 1 very little 3 somewhat 5 very much

0% 11% 17% 28% 44%

G8

How many years in the future do you see yourself owning/managing your current business? 1 to 3 4 to 8 9 to 14 As long as possible 6% 50% 22% 22%

G9

How pleased are you with the growth you have achieved so far in your business? Not pleased Somewhat pleased Very pleased

5.6% 44% 50%

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Appendix F: Summary of Detailed Survey Responses

GENERAL OPENING QUESTIONS
REF G1 constructon/arch. marketing/advert. wholesale/resale business consult. G2 G3 G4 G5

manufacturing

IT consultant

finance

other

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

x x x x x x x x x x x x x x x x x x

Years 16 2 7 5 10 4 23 8 7 8 3 5 1 8 8 1 3 7

yes/no yes yes yes yes no yes yes no yes no no yes yes yes yes yes no yes

yes/no yes no yes yes yes yes yes yes no yes no yes yes yes yes no no yes

0 x

1to2

3to5

6to8

8+ x

x x x x x x x x x x x x x x x x

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MOTIVATION QUESTIONS
REF M1 M2 M3

somewhat

somewhat

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

x x x x x x x x x x x x x x x x x x

yes/no yes no yes no yes no yes yes no no no no yes yes yes no no yes

x x x x x

x x x

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very well

not well

high

low

Michael Casassa

RESOURCE QUESTIONS
REF R1 R2 R3 R4 R5 R6 post-grad. Degree x x x x x x x x x x x x x x x x R7

4-year degree

some college

somewhat

somewhat

not very

not very

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

years 7 5 8 5 9 5 8 7 6 7 5 6 5 6 5 5 3 5

years 10 1 7 3 7 3 12 3 6 5 6 5 5 5 6 0 3 5

x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x

x x

years 5 12 2 4 4 3 0 4 8 5 6 4 4 6 4 6 4 4

yes no yes yes no no yes no no yes n/a no yes yes yes no no yes

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yes/no

very

very

Michael Casassa

ENTREPRENEURIAL ORIENTATION QUESTIONS

REF E1 somewhat difficult E2 E3 somewhat confident E4 city regulations state regulations federal regulations x x x x x x x

very confident

combination

very difficult

not confident

very easy

learned

innate

labour laws

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

x n/a x n/a x n/a x x x x n/a n/a x x x n/a n/a x

x x x x

x x x

x x x x x

x x x x

x x

x x x x x x x x x x x x

x x x x x x x x x x x x x x x x x x x

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other

none

Michael Casassa

CLOSING GENERAL QUESTIONS

REF

G6 pleasure-based

G7

G8 as long as possible

G9 somewhat pleased x x x x x x x x x x x x x x x x x x x x x

profit-based

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

x x x x x x x x x x x x x x x x x x x x x x x x x x

very little

mix

x x x x x x x

x x x x x x x x x x x

x x x

x x

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very pleased

not pleased

9-14 years

very much

somewhat

1-3 years

4-8 years